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PHYSICIANS’ SYSTEMS 


by 



E. S. WOOLLEY, C. P. A. 


Certified Public Accountant of the States of Iowa 
and Missouri; Member American Society of 
Certified Public Accountants; Missouri 
Society of Certified Public Account¬ 
ants; National Association of 
Cost Accountants 


A Short Course of Business Instructions for the 
Doctor and his Assistant, Divided into 
Three Main Sections. Namely:— 


ACCOUNTING 


COLLECTIONS 


INCOME TAXES 


PHYSICIANS PUBLISHING 
COMPANY 

Kansas City, Missouri, 


~Ri 

,W?sr 


Copyright 1928 by 
ERNEST S. WOOLLEY 
All Rights Reserved 


Printed in U. S. A. 





sm t . 

/5UG 1’) ,’323 


©C1A1083593 



CONTENTS 


SECTION I. ACCOUNTING 


Chapter 

I. INTRODUCTION _ 7 

U 1. The Necessity of Keeping Records. 

2. What Bookkeeping Is. 

3. When in Doubt as to Which Account to Enter 
Any Transaction. 

4. Example of Reasoning Out a Transaction. 

5. Under the Accrual Method. 

6. Under Receipts and Disbursements Method. 

II. BOOKKEEPING METHODS_15 

Tf 7. The Two Methods. 

8. Advantages and Disadvantages of Accrual 
Method. 

9. Advantages and Disadvantages of Receipts 
and Disbursements Method. 

10. Receipts and Disbursements Method Recom¬ 
mended for Average Physician. 

III. RECEIPTS AND DISBURSEMENTS METHOD 21 

1[11. The Cash Journal. 

12. Starting the Cash Journal. 

13. Balancing. 

14. Line Number. 

15. Date. 

16. Name or Description. 

17. Posted to Patients Ledger. 

18. Deposits, Cash Receipts. 

19. Cash Received From Patients. 

20. Received by Doctor Personally and Retained 
by him. 

21. Cash Received Not From Patients. 


— 3 — 




CONTENTS 


Chapter 

III. RECEIPTS AND DISBURSEMENTS METHODS (Cont.) 

22. If Money Is Borrowed. 

23. Two Bank Accounts. 

24. Checks, Cash Paid Out. 

25. If Money Is Paid for Expenses by Doctor 
Personally. 

26. Cash Paid Out Tickets. 

27. Borrowed Money Repaid. 

28. Daily Balance, Cash and Bank. 

29. How to Reconcile Bank. 

30. Paid Outs, Check Number. 

31. Explanation. 

32. Drawings. 

33. Sundry Credits. 

34. Fees. 

35. Use and Occupancy. 

36. Salaries. 

37. Books and Stationery. 

38. Auto Expenses. 

39. Blank. 

40. Sundry Expenses and Explanation. 

41. Synopsis of Where to Charge Expenses. 

42. Partnerships. 

43. Closing Cash Journal at Year’s Ends. 

44. Balance Sheet On Cash Receipts and Dis¬ 
bursements Method. 

IV. PATIENTS LEDGER_54 

H45. General. 

46. The Visible Record. 

47. Account Sheet for Visible Record. 

48. Physicians Ledger, Loose Leaf. 

49. Card System. 

50. Duplicate Statement-Ledger System. 

51. Main Points of Patients Ledger. 

52. Special Patients Ledger for Dentists. 


— 4 — 



CONTENTS 


Chapter 

V. SUNDRY FORMS_64 

H53. The Office Day Book. 

54. Doctor’s Memo Book. 

55. Pocket Ledger. 

56. Case Record. 

57. Duplicate Prescription Method. 


VI. ACCRUAL METHOD_ 

1f58. Opening Discussion. 

59. General Ledger. 

60. Opening the General Ledger. 

61. Trial Balance General Ledger. 

62. Cash Journal for Accrual Method. 

63. Bank Deposits and Checks. 

64. Petty Cash Imprest Fund. 

65. General Ledger Debits and Credits. 

66. Patients Accounts Receivable. 

67. Accounts Payable, Debits and Credits. 

68. Personal Accounts, Debits and Credits. 

69. Fees. 

70. Miscellaneous Income. 

71. Expenses. 

72. Balances of Accrual Cash Journal. 


72 


SECTION II. COLLECTIONS 


VII. COLLECTIONS _89 

1f73. With Whom to Open the Account. 

74. What Charge Accounts Are. 

75. Definite Understanding Regarding Payments. 

76. Monthly Statements. 

77. When to Mail Statements. 


— 5 — 





CONTENTS 


Chapter 

VII. COLLECTIONS (Cont.) 

A78. Guarantors. 

79. Amount of Charges. 

80. Medical Finance Companies. 

81. Synopsis of Collection System. 

82. Collection Agencies. 

83. Statement Stickers. 

84. Requirements of Collection Letters. 

85. Four Sample Letters. 


SECTION III. INCOME TAXES 


. INCOME TAXES 

103 

1T86. 

General. 


87. 

Obtaining the Figures. 


88. 

Depreciation. 


89. 

Making the Return “Schedule ‘A’ ” 


90. 

Making the Return, Items 1 to 18, inclusive. 

91. 

Computation of Tax. 


92. 

Specimen of Federal Return. 


93. 

State Income Tax Returns. 


94. 

Answers to Questions Often Asked. 




CHAPTER I 


INTRODUCTION 

fll. The Necessity of Keeping Records 

To the old-time physician anything suggestive 
of bookkeeping implied a lot of unnecessary work¬ 
ing with figures, which, when they were obtained, 
did not mean anything. They therefore limited 
themselves to merely keeping some sort of record of 
the amounts owing to them by patients, and made 
no pretense of keeping anything approaching an ac¬ 
curate record of their Income and Expenses. This 
attitude has largely changed however, and the up- 
to-date physician realizes that it is just as necessary 
for him to know the business end of his profession, 
as it was for him to study the profession in the first 
place. Possibly the Income Tax Laws have had some¬ 
thing to do with this, but be that as it may, the 
attitude of the doctor has changed from that of 
even ten to fifteen years ago. And rightly so, be¬ 
cause unless the records are kept, and kept in .such 
a way as to be susceptible of proof, not only the 
preparation of the income tax returns, but any other 
information which is dependent upon a knowledge 
of the facts, is open to question. As a matter of 
fact nobody does entirely without records of some 
sort, primitive though those records may be. The 
reason for this is the inability of the human mind to 
remember a multiplicity of transactions correctly. 
As therefore, it is absolutely necessary that some 
records be kept—surely it is only the part of com¬ 
mon sense to keep these records in such a way as to 


— 7 — 



enable a proof of their correctness, particularly 
when no more work is really involved by so doing. 
Rather there is less work involved, because by insur¬ 
ing accuracy day by day as work goes along a lot 
of searching for errors is eliminated, and consider¬ 
able time and worry saved. 

1J2. What Bookkeeping Is 

From time immemorial man has used symbols 
as a convenient way to designate various things. 
Paintings are symbols, even the printed word is a 
symbol, and “Account” is nothing but the symbol 
of bookkeeping. They are kept in books merely for 
the sake of convenience, and do not have to be kept 
that way. For example, vision to yourself a series 
of shelves built into “cubby-holes” around the wall, 
with a separate cubby-hole for each transaction, or 
series of the same transaction; and every time any 
transaction occurred a memorandum was put into 
its proper cubby-hole. Each cubby-hole would then 
contain a complete record of the transactions affect¬ 
ing it. This way, however, would not only prove a 
nuisance but would entail a lot of work. Therefore 
books were devised and in the place of “cubby¬ 
holes,” “Accounts” on ledger sheets were used. The 
columnar form is a further development of the “Ac¬ 
counts” on ledger sheets as it gives a “column” in 
the place of the separate ledger sheet for each of 
like accounts. Each “Column” is therefore the 
“cubby-hole” of the above illustration. The prin¬ 
ciple, however, is exactly the same, and not one bit 
more complicated. All there is to bookkeeping is 
to see that all transactions are properly placed in 
their correct “cubby-hole” or “account.” 


— 8 — 


T[3. When in Doubt as to Which Account to Enter 
Any Transaction 

Sometimes there is a doubt, however, as to what 
“account” different transactions should be entered, 
and one of the purposes of this book is to give the 
correct account in which all the ordinary transac¬ 
tions should be recorded, and to explain the under¬ 
lying principles so that a little thought will show 
where any unordinary transaction should be entered. 
If this doubt exists, a good way to do is to take a 
piece of paper and write down what actually hap¬ 
pened step by step. In this way the danger of over¬ 
looking some part of the transaction, which is one 
of the pitfalls of bookkeeping and responsible for 
more errors than anything else, can be avoided. Do 
not try to visualize a complicated transaction in its 
entirety, because in this way you are almost sure to 
overlook something. Bookkeeping is the art of keep¬ 
ing a detailed record of transactions of business as 
they occur. Therefore the only way to do when 
doubt exists, is to write these details down, just as 
each detail of the completed transaction happened, 
step by step. Then it can be seen what entries 
should be made on the books. 


fl4. Example of Reasoning Out a Transaction 

Suppose that a note is received for some account 
and is taken to the bank and discounted, and the 
money received therefor, less the amount of the 
discount. Then later the bank returns the note as 
uncollectible, but with part paid on it, and requests 
that the balance be returned them under their agree- 


— 9 — 


ment. Three distinct things have happened, and a 
fourth probably will happen. The things that have 
happened are: 

1. A note, (which as a negotiable instrument is 
self-supporting) has closed out an open ac¬ 
count in the Patients Ledger. 

2. Money has been borrowed on the note by 
using the note as collateral. This is true in 
every case except where endorsement is made 
“without recourse.” 

3. The note has been returned and the money 
borrowed on it; less any payments by the 
maker; has had to be repaid. 

What probably will happen is: 

If the bank cannot collect the note, the doctor 
will also fail to do so, and the note will have 
to be taken off the books. 

After reasoning the matter out this way, it is 
seen what entries would have to be made on the 
books under the “Accrual” method or under the “Re¬ 
ceipts and Disbursements” method. These two meth¬ 
ods, Accrual and Cash, are explained in detail in 
Chapter 2. 

fl5. Under the Accrual Method 


Entry 1 


When Note Is Accepted 


Charge Notes Receivable_$100.00 

Credit Accounts Receivable_ $100.00 


With the total amount of the note. 

(This is because a note has been received from the debtor 
and therefore he no longer owes his open account but only owes 
the note.) 


— 10 — 




Entry 2 


When Note Is Discounted 


Charge Cash (actual amount received)-$95.00 

Charge Discounts (amount retained by bank)_ 5.00 

Credit Notes Receivable Discounted- $100.00 


(With full amount of note) 

Now cash has been received for the note but a 
charge has been made which must be reflected in 
the expenses, and therefore an expense account 
called “discounts” is charged with the amount that 
the bank retains. Also as the bank insists that the 
doctor endorse the note, and by this endorsement he 
agrees to stand back of the note if the maker does 
not pay it, it is better accounting to credit “Notes 
Receivable Discounted” rather than “Notes Receiv¬ 
able.” This is because what is known as a contin¬ 
gent liability is set up. That is the liability is con¬ 
tingent on the maker not paying, but nevertheless, 
if he does not pay it, then the endorser must. 

Entry 3 


When Note Is Returned 

Charge Bad Debts--$ 40.00 

Credit Cash___ $ 40 - 00 

(With amount of check given to the bank) 

(This is because, under the accrual method, the charges 
to patients have come into income as and when the charges 
were made, and also because if the bank cannot make collec¬ 
tion it is reasonably certain that the note is bad, and there¬ 
fore must be charged to expense against the income.) 


Entry 4 


Charge Notes Receivable Discounted-$100.00 

Credit Notes Receivable- 


$ 100.00 


— 11 — 







With amount of note, as this amount is still on the books in 
both accounts, and must of course be taken out as neither the 
asset nor the contingent liability -any longer exist. 

(This however, does not mean that all effort to collect 
should be given up if there is any possibility at all of collecting 
it, but it does mean that it will probably be very hard to col¬ 
lect, and it is better to take it out of the income and then if 
collection should ultimately be made, credit the amount col¬ 
lected to an Income Account titled “Bad Debts Collected. ,, ) 

If desired, the account of Notes Receivable Dis¬ 
counted could be eliminated and the credit in Entry 
2 made direct to Notes Receivable. Then Entry 4 
would be unnecessary. As already stated the ob¬ 
ject of having the entry made to Notes Receivable 
Discounted is because the doctor is an endorser of 
the note, and as such, is liable to the bank if the 
maker does not pay. Under correct accrual account¬ 
ing methods therefore this liability should be re¬ 
flected on the books and not lost sight of, as is the 
case where the note is taken off by a credit direct 
to the Notes Receivable account. If this latter meth¬ 
od is followed then certainly a notation should be 
made to the effect that the note has been discounted, 
the date it was discounted, and who it was dis¬ 
counted with. And this notation should be made on 
the individual’s account in the Patients Ledger, or 
if a note ledger is kept, then in the note ledger. 

Tf6. Under the Receipts and Disbursements Method 

Only the following entries would be necessary: 

When note is accepted 

Merely a notation on the individual ac¬ 
count of the maker in the Patients Ledger that 


— 12 — 


a note has been received, giving the date of the 
note and when it is due. 

When note is discounted 

An entry on the individual’s account to the 
effect that this note has been discounted, and 
who it was discounted with, and the date it was 
discounted. 

An entry will be made in the Cash Journal which will 

Charge Cash_$ 95.00 

Credit Fees- $ 95.00 

With the actual amount of Cash Received and credit also the 
individual account in the Patients Ledger. 

This is because under the Receipts and Dis¬ 
bursements method no fees are brought into Income 
until they are paid. Charges to patients merely be¬ 
ing made to their respective accounts but not brought 
into income until the money is received. 

When Note is returned 

Charge Fees-—- 

Credit Cash- 

With actual amount refunded to the bank 

This is because the entire amount that was re¬ 
ceived from the bank was brought into Income by 
the former entry, and therefore when some was not 
collected that much must be taken out of income. 
If desired, and there is thought that there would be 
any possibility of obtaining collection at some later 
date, the unpaid amount can be restored to the 
Patients Ledger. Under the Receipts and Disburse- 


$ 40.00 

$ 40.00 


— 13 — 






ments method doing this would not bring anything 
into income. As explained in the next chapter, the 
Receipts and Disbursements Method of handling In¬ 
come and Expenses does not record the transactions 
in such detail as does the Accrual Method, but it is 
the author’s opinion that it will prove itself much 
the more satisfactory in the great majority of cases. 

Under any plans similar to that of the Medical 
Finance Company spoken of in the Collection Sec¬ 
tion, the amount received will be brought directly 
into Income under either “Accrual” or Receipts and 
Disbursements Method, as the Doctor is not an en¬ 
dorser in such cases. 


— 14 — 


CHAPTER II 


BOOKKEEPING METHODS 

fl7. The Two Methods 

There are two methods of keeping books rec¬ 
ognized everywhere as correctly reflecting income, 
if either of these methods are followed consistently. 
These two methods are the “Accrual” method and 
the “Receipts and Disbursements” method. The Ac- 
rual method brings into Income the fees as they are 
earned and the expenses as they are incurred, with¬ 
out regard to the dates of payment, and is the meth¬ 
od usually used by business houses. The Receipts 
and Disbursements method only recognizes Cash, and 
therefore does not bring the fees into income until 
they have been received in cash, and likewise does 
not take into consideration any expenses until they 
have been paid in cash. This latter method follows 
the old adage that “ A sale is not a sale until the 
cash is in the drawer.” 


Advantages and Disadvantages of the Accrual 
Method 

The Committee on Accounting Terminology of 
the predecessor of the present American Institute of 
Accountants, namely the American Association of 
Public Accountants, gave the following definitions of 
“Accrual,” and coming from this source they can be 
considered authoritative as far as the accounting 
meaning of the word is concerned: 


— 15 — 


Accrue 

1. To accumulate automatically through lapse 
of time. 

2. To set up or record a debit or a credit auto* 
matically accumulating through lapse of 
time. 

Accrual 

1. The act of accruing. 

2. That portion of an accruing account not yet 
due, applicable to the accounts of the 
period under consideration. 

In other words this means that payments made 
for expense accounts might have to be divided, as 
part might apply to one period and part to another. 
Or that expenses which had not been paid, or even 
invoiced, might have to be entered on the books by 
means of a journal entry. This method also brings 
into income all charges to patients as and when the 
charges are made, and if it is ultimately found that 
the amounts cannot be collected then they must be 
“written off,” that is the accounts receivable account 
in the General Ledger, and the individual account in 
the Patients Ledger must be credited and an expense 
account, such as “Bad Debts” must be charged. In 
other words, under the Accrual Method, all income 
and expenses must be allocated to the period to 
which they apply. 

The Advantages of the Accrual Method, there¬ 
fore are, that each period is correctly burdened with 
its own expenses and income, and, by the use of con¬ 
trolling accounts in the general ledger, a more ac- 


— 16 — 


curate statement of Assets and Liabilities and In¬ 
come and Expenses can be drawn off. 

The Main Disadvantage, particularly from the 
standpoint of the Physician, is that more bookkeep¬ 
ing, and a greater knowledge of bookkeeping, is re¬ 
quired under the Accrual method than under the Re¬ 
ceipts and Disbursements method. To the accrual 
method it makes absolutely no difference whether it 
is Cash or other asset, such as a note or Account 
Receivable, that is received, profit is realized the 
moment the transaction is completed and a cause 
of action has arisen which can be legally enforced 
against the debtor. Detailed instructions for the 
Accrual method of bookkeeping are given in Chapter 
VI. 

If9. Advantages and Disadvantages of the Receipts 
and Disbursements Method 

Under the Receipts and Disbursements method 
no fees are brought into Income until the account is 
received in Cash. This eliminates the necessity of 
having to write off any of the accounts to “Bad 
Debts” and therefore also facilitates the preparation 
of the Income Tax Returns, as this item, which is 
one always open to controversy, never appears on a 
return. The only income reported is the cash which 
is actually received. In the same way no expenses 
are taken into consideration until they are paid. A 
considerable amount of bookkeeping is therefore 
saved and a lot of detail work eliminated. 

The Disadvantages of the Receipts and Dis¬ 
bursements method as proposed herein, are principal¬ 
ly, that by this piethod there is no “Control” of the 


— 17 — 


Patients Ledger, that is an account posted in totals 
to the General Ledger showing the net balance of 
these Patients Accounts, which net balance should 
agree with the sum total of the different individual 
accounts in the Patients Ledger. This is because un¬ 
der this system there is no General Ledger used, and 
also because the fees are not brought into income as 
and when the charges are made to the individual 
patients, but only as cash enters in. In the same 
way expenses do not appear on the books until they 
are paid, therefore the Receipts and Disbursement 
Method does not as accurately reflect the income of 
each separate period as does the Accrual Method. 
Over a long enough period, however, this Cash 
Method will just as correctly reflect the income as 
will the more complicated accrual method, as far as 
Physicians are concerned. 

If 10. Receipts and Disbursements Method Recom¬ 
mended for Average Physician 

One of the main reasons that the Cash method 
is recommended for the Physician is the fact that 
there is a certain amount of charity work which he 
can hardly avoid, and often he does not know that 
the case is to be a charity one when he accepts it. 
He therefore makes his charges in the ordinary way 
only to find out later that he is absolutely unable to 
make collection. Under the cash method, when the 
charge is made any entry except to the individual 
account is unnecessary, and therefore his “Income 
Account’’ is not misleading him by having in it 
“Fees” that are not really income. While both 
methods are shown herein, and detailed instructions 


— 18 — 


are given for both methods, so that each individual 
can choose for himself which method he prefers, 
still the author is strongly of the opinion that the 
Cash Receipts and Disbursements method complete, 
will prove the most satisfactory in 99% of the of¬ 
fices. In order to further assist each individual 
physician in making his own decision, the main dif¬ 
ferences between the two methods may be summar¬ 
ized as follows: 

Receipts and Disbursements Method 

No General Ledger Necessary (as Balance 
Sheet Accounts, that is the Assets and Liabili¬ 
ties, are not carried on the books as controlling 
accounts). 

Only Cash Received is taken in as Income. 

Only Cash Paid out is taken in as expenses. 

Simplicity, as Cash is the only real factor. 

No Bad Debts to keep record of. 

There being no General Ledger, no month¬ 
ly Trial Balance is required. 

Accrual Method 

A General Ledger, that is a ledger carry¬ 
ing all the accounts in totals is required. 

All charges are taken into income as and 
when the charges are made. 

All expenses are taken in as and when the 
expenses are incurred without regard to pay¬ 
ments. 

Greater bookkeeping knowledge required. 

Bad Debts, that is accounts found uncol¬ 
lectible, must be susceptible of proof. 

Monthly Trial Balance, that is a run of all 
the Debits and Credits either in totals or in bal- 


— 19 — 


ances, of the General Ledger is necessary in 
order to prove that the General Ledger is in 
Balance. 

Collections can be pressed just as enthusiastical¬ 
ly under the Cash method as if they had already 
been brought into income under the accrual method, 
but the danger of thinking that earnings are greater 
than they are is minimized. It is for the reason, 
therefore, that the author believes that the Cash 
method is much better adapted to the Medical Pro¬ 
fession in general, that the detailed instructions for 
this method are explained first. If it is decided to 
use the Receipts and Disbursements method, it is 
advised that Chapter VI, “Accrual Method” is not 
even read, or at least until such times as the Cash 
Method is thoroughly understood. This will avoid 
the danger of getting “mixed up” and having part 
of one system and part of the other, which condi¬ 
tion exists in many offices, and not only in Phy¬ 
sicians’ offices, but in business offices as well. 



CHAPTER III 


RECEIPTS AND DISBURSEMENTS METHOD 

fill. The Cash Journal Detailed Instructions 

What is commonly known as the '‘Receipts and 
Disbursements Method” of bookkeeping, means Cash 
Received and Cash Paid Out only. In other words 
Cash is the only recognized factor and nothing is 
brought into the general accounts, that is, the Income 
and Expense Accounts, until after Cash has entered 
into the transaction. Therefore while the charges 
to the Patients are posted to their individual ac¬ 
counts in the "Patients Ledger,” as explained under 
the caption of "Patients Ledger” in the next chapter, 
still the amounts so charged are not recognized as 
Income until the cash is received. The main point 
to get clearly in mind therefore, in keeping books 
on the Receipts and Disbursements Method is that 
everything shall be done on the cash basis, and not 
half on the cash method and half on the accrual 
method, which is what happens if charges to patients 
are brought into income as and when made, but the 
expenses only as they are paid, or vice versa. There¬ 
fore keep the thought clearly in mind that under the 
Receipts and Disbursements method, Cash must be 
received or paid out before any entry whatsoever is 
made in the Cash Journal. 

fll2. Starting Cash Journal 

When starting the Cash Journal just enter in 
Column 4—Cash Receipts, Deposits—the amount of 
cash on hand and in bank, and enter the same 


— 21 — 


amount in Column 10—Sundry Personal Credits. 
This is for the reason that if this is not done then the 
Daily Cash and Bank Balance, Column 6, which is 
the difference between the Receipts and the Dis¬ 
bursements, would not be correct. For the same rea¬ 
son it is essential that the reconciliation of the cash 
and bank, as explained under instructions for 
Column 6, be made before any figures be put down 
in the book. After being sure the amount is cor¬ 
rect, the figure will then be entered in Column 4 
and Column 10 as already stated. 

|f 13. Balancing 

The Cash Journal illustrated on the insert be¬ 
tween these pages is the only book in which the 
Income and Expenses are recorded under the sys¬ 
tem explained herein, and is made in columnar form, 
that is a separate column is provided for series of 
the same kind of transactions, because this method 
is a time saver, eliminating as it does the necessity 
of detailed postings to another book. It is so de¬ 
signed that a proof can be had of the correctness of 
every entry, as and when the entries are made, be¬ 
cause each line should balance, and if each line 
balances then each page must balance, and if each 
page balances then the totals at the end of a period 
must balance. By each line and each page “Balanc¬ 
ing” is meant that: 

The sum total of the amounts in the follow¬ 
ing “Charge” or “Debit” columns, namely: 
Column 4. Deposits, Cash Receipts. 

“ 9. Personal Drawings. 

“ 12. Use and Occupancy. 

“ 13. Salaries. 


— 22 — 


PAGE HO. 


PHYSICIANS CASH JOURNAL 


JL& 





















































































































































































































































































































































































































































































































































































































































































Column 14. 
“ 15. 

“ 16. 

“ 17. 


Books and Stationery. 

Auto Expense. 

Blank (the use of this explained 
under its own caption). 

Sundry. 


Should equal the sum total of the amounts in 
the following “Credit” Columns, namely: 

Column 5. Checks, Cash Paid Out. 

“ 10. Sundry Personal Credits. 

“ 11. Fees. 


Therefore, if when additions are made of the 
totals of the columns of each page, and it is seen 
that the sum of the totals of the two sets of columns 
shown above do not agree, all that it is necessary 
to do is to trace each line and see that every item 
has been entered both in a charge column and also 
in a credit column. In other words to see that all 
items entered in Column 4—Cash Received, De¬ 
posits—are also entered in either Column 10—Sun¬ 
dry Personal Credits—or Column 11—Fees—and 
also that all items entered in Column 5—Checks, 
Cash Paid out—are also entered in one of the 
Columns 9, 12, 13, 14, 15, 16 or 17. Of course no one 
amount can be entered in more than two columns, 
with the possible exception of cash received by the 
doctor from patients and disbursed by him, or re¬ 
tained by him, without going through the office, as 
explained in detail under the instructions for Column 
4, Cash Receipts. If it is found that each line has 
been correctly entered as above shown, then the only 
place that the mistake can be is in adding the totals 


■ 23 — 


of the columns, and a re-check of these additions will 
show where the error is. Column 6—Daily Balance 
—does not enter into this balancing, or proof of cor¬ 
rectness of posting, for the reason that it is merely 
what is known as a “Memo” account, that is, it is 
only inserted for the purpose of aiding in keeping an 
accurate record of the daily cash and bank balance. 
When these balances are kept just on check stubs, 
there is always the double danger of making a mis¬ 
take in additions or subtractions on the stubs, and 
of carrying over a wrong figure from one sheet of 
stubs to the other. This danger of mistakes will be 
greatly reduced if this column is used and the spe¬ 
cific instructions given under the heading of Column 
6 are followed. Under the instructions for Column 
6 is also shown the correct way to reconcile the 
bank, that is to make a reconciliation between the 
amount shown in Column 6 and the balance shown 
on the bank statement at the same date. “Recon¬ 
ciliation” merely means to bring the two into agree¬ 
ment with each other, and show where the differ¬ 
ences between the two figures occur. 

14. The Line Number 

The Line Number which is carried on both sides 
of both pages is merely for the purpose of assisting 
in posting items to their correct line, and if watched 
will save the trouble of having an item in one column 
on one line and the same item in its corresponding 
column on another line, and therefore will make the 
checking back to see that each line balances, if such 
should be necessary at any time, very much easier. 


—24 


If 15. Column 1—Date 

The Receipts and Disbursements Plan explained 
herein, either with the use of the Cash Journal form 
used to illustrate this text or with ordinary blank 
columnar forms procurable from any stationery 
store, makes the use of a “General Ledger” such as 
is explained under the “Accrual Method” in Chapter 
VI, unnecessary. The amounts can be carried for¬ 
ward from one page to the next, and from one month 
to the next until the end of the year, therefore this 
date line should show the month and day, but the 
year is not required here as it is shown at the top 
of each page in the place provided. It is a very good 
idea not to have parts of two months on any one 
page, but even if the “Carried over” figures have 
made it so that there is only a line or two on the 
page when the month ends, bring these totals to the 
bottom of that page and carry them over to a new 
page for a new month. This is for the reason that^ 
a month is a recognized period and it is better not 
to have two such periods mixed up together, and the 
saving in paper does not begin to offset the ad¬ 
vantages of keeping these periods separate. 

ffl6. Column 2—Name or Description 

Here enter the name of the person from whom 
the money is received or to whom it is paid, together 
with any other information which might be consid¬ 
ered necessary. For example: If Mr. John Smith 
pays $10 on account of services performed for his 
daughter, May; while the account would be in the 
name of “John Smith” as explained in detail in the 
section “Patients Ledger” in Chapter IV it is better 


— 25 — 



to enter it here as follows: John Smith (May). In 
the same way when payments are made to William 
Jones and Company, owners of the building, write 
“Wm. Jones & Co. (rent). ,, And follow this system 
throughout as it will greatly facilitate obtaining in¬ 
formation of any entry which may be required at 
some future date. Remember this is the only reason 
for Physicians keeping books at all, therefore if the 
transactions are not recorded .so as to be entirely 
clear—one, two, or even ten years after they are 
entered, there was not very much use in entering 
them in the first place. And it does not take but a 
fraction of a minute to enter them properly at the 
time, but considerable time can be consumed “puz¬ 
zling” over them later. Really the best way to do is, 
if possible, to set aside a specific time each day to do 
the posting in; it will take less time if done in a quiet 
period when the entire thoughts can be put on the 
work, than it will if done when there is a danger 
of many interruptions. 

HI7. Column 3—Posted to Patients Ledger 

Only the cash received from the patients, that is 
the credits to the individual patients accounts, will be 
posted from the Cash Journal. But as days may go 
by without posting these credits to the individual 
accounts, this column is provided so that a mem¬ 
orandum is had of how far the posting has been done 
to. The use of this column makes it unnecessary 
to go back over the individual accounts to obtain this 
information. On the individual account in the 
Patients Ledger put the date the payment was made 
as shown in this Cash Journal, and it helps in check- 


— 26 — 


ing back, should such be required at any time, to 
put also the page number of the Cash Journal on 
which the item appears. This column, that is Column 
3 of the Cash Journal, is purposely made wide »so as 
to permit more than a check V mark to indicate 
posting to the individual accounts. A good idea is 
to put here the date, like this 4/10, on which the 
item was actually posted to the credit of the in¬ 
dividual account. This is for the reason that more 
thought is required to make a date entry than there 
is to just make a check mark indicating that the 
item has been posted, therefore the danger of think¬ 
ing that it has been posted when actually it has not 
been posted, is lessened. And really this is a thing 
to guard against, therefore get the habit of not mak¬ 
ing the mark, whether check mark or date is used, 
indicating that an item has been entered, until after 
the amount has actually been written in on the 
patient’s individual account. This is because if the 
mark is made and an interruption comes, the prob¬ 
abilities are against one looking back to see if the 
last item marked as entered really has been entered. 
Whereas if the entry is made and then an interrup¬ 
tion comes before it is checked as posted, no harm is 
done, as it automatically shows up when the posting 
is resumed. Because two credits of precisely the 
same amount on the same day to the same individual 
would immediately raise the question of duplication 
in the mind of the person posting them. 

fll8. Column 4—Deposits, Cash Receipts 

Just one column each for all cash received and 
cash paid out, whether the money goes through the 
bank account or not, is provided in the Cash Jour- 


— 27 — 


nal form illustrated herein, for the reason that this 
saves work. If it is desired, however, separate 
columns for Cash Receipts and Bank Deposits, and 
Cash Paid Out and Checks Issued, can be used. In 
that case the only difference from the method de¬ 
tailed hereunder would be: 

All cash received would be entered in the 
“Cash Received” Column first. 

Deposits made to the Bank would be en¬ 
tered in the Cash Paid Out Column, as well as 
the Bank Deposits Column. 

This is for the reason that a deposit to the bank 
would be a credit to the cash under that plan. In 
using separate columns the difference between the 
two “Cash” columns should equal the Cash on Hand, 
and the difference between the two bank columns 
would represent the balance in the bank. With the 
use of a form such as illustrated, this duplication 
is unnecessary, the difference between the two 
columns, namely Column 4 and Column 5 represents 
both the Cash on Hand and that in the bank, and it 
is a simple matter to deduct the amount of the Cash 
that is on hand, from the figure arrived at by deduct¬ 
ing Column 5 from Column 4 and used daily in 
Column 6, and the result will be the Cash in the 
bank. A detailed form and instructions for making 
this reconciliation is shown under the instructions 
for Column 6. 

ffl9. Cash Received From Patients 

If turned into the office. 

Enter the amount in Column 4, with an appro¬ 
priate description as already explained, and also 
enter the same amount in Column 11—Fees. This 


— 28 — 


brings the amount into Income for the first time. 
The amount will also be entered as a credit to the 
Patient’s individual account in the Patient’s Ledger. 
It makes no difference whether or not the amount 
is later deposited in the bank or paid out as cash 
for some expense item, if it is turned over to the 
office it must be entered in Column 4, Cash Receipts, 
and if from patients also in Column 11, Fees. 

fl20. If Received by Doctor Personally and Retained 
by Him 

The amount can, if desired, be entered in 
Column 4—Cash Receipts—but in that case it must 
be entered in Column 5 as Cash Paid Out, as well as 
in Column 9—Personal Drawings—and Column 11, 
Fees. The same results exactly are obtained if the 
posting to the Cash Columns are left out and the 
entry made merely to Column 9—Personal Drawings 
and Column 11—Fees. In this latter case, however, 
care must be taken to see that the amount is posted 
to the credit of the individual patient. The reason 
that it is not necessary to post to the two Cash 
Columns (unless it is desired that Column 4—Cash 
Receipts—shall show at all times all cash received 
from all sources) is that the two entries merely off¬ 
set or cancel each other in these columns. Further¬ 
more, if cash is collected by the doctor and retained 
by him, the effect is that fees have been earned and 
withdrawn for personal use, and therefore the sug¬ 
gestion of entering only in Column 9—Personal 
Drawings—and Column 11—Fees, correctly records 
the transaction. As the name of the patient from 
whom the money was received will be entered in 


— 29 — 


Column 2 there is not much danger of overlooking 
the posting to the patient’s account, even though the 
amount does not appear in the cash column. 

Tf21. Cash Received NOT From Patients 

If two bank accounts are kept, one for profes¬ 
sional income and the other for income derived from 
sources outside of professional fees, then of course, 
money received from those outside sources would not 
be entered on this Cash Journal. But if only one 
bank account is kept for Income, which is the better 
way, then amounts from these sources will be en¬ 
tered in Column 4—Cash Receipts and also in 
Column 10—Sundry Personal Credits—with an ex¬ 
planation of the source from which the money was 
received entered in Column 2—Name and Descrip¬ 
tion and Column 8—Explanation. For example, 
suppose $100 was received as dividends on some 
stock in “A” Corporation, then in Column 2—Name 
or Description—would be entered “A” Corporation, 
in Column 4 Cash Receipts—would be entered $100, 
in Column 8—Explanation would be entered “Divi¬ 
dends,” and in Column 10—Sundry Personal Credits 
would be entered $100. In this way there is a com¬ 
plete record of the fact, and it will be just as clear 
ten years from the date of entry as it was the day 
it was entered. 

J[22. If Money Is Borrowed 

If money is borrowed and deposited to the pro¬ 
fessional account at the bank, the amount will be en¬ 
tered in Column 4 and Column 10 as showm in the 
following example of $1000 borrowed at the First 


— 30 — 


National Bank. In Column 2 will appear the name, 
or—“First National Bank.” In Column 4 the amount 
received, or—$1000. In Column 8 how the money 
was received, or—“Note.” In Column 10 why the 
money was received, which was on account of the 
Doctor’s credit, and therefore enter to this Column— 
“Sundry Personal Credits”—$1000. If, however, in¬ 
stead of getting the face of the note, that is the total 
amount the note is made for, the bank deducts its 
interest at the time and calls it by another name 
“Discount,” then enter the total amount that the 
note is made for in Column 10—Sundry Personal 
Credits, and the amount of Cash actually received 
in Column 4, Cash Receipts, and the difference 
which is the discount or interest, in Column 17— 
Sundry Expenses—and in Column 18—Explanation 
—enter the word “Interest.” This is for the reason 
that if this is not entered this way the amount of 
this interest will be forgotten, and it is a deductible 
item from all Income Tax Returns, and therefore 
should appear as an expense. 

fl23. Two Bank Accounts 

In referring to two bank accounts in the preced¬ 
ing paragraph, the thought in mind was, as stated, 
two accounts used for Income, one being for Profes¬ 
sional Income and the other for Income from sources 
outside of the professional. While there is no ques¬ 
tion but that two bank accounts can be used for such 
purposes, and in some cases it might be more prac¬ 
tical to do so, still it is not suggested here, for the 
reason that if all Income is concentrated into one 
book it is much easier to make the Income Tax re- 


- 31 — 


turns at the end of the year, and to obtain any other 
information which it is necessary to obtain from the 
books from time to time, particularly facilitating 
matters for the Executors of the Estate. It is sug¬ 
gested though, if feasible in each individual case, 
to have two bank accounts for “Outgo,” using the 
larger checks with three to a sheet for the profes¬ 
sional account, and the smaller pocket checks for 
the personal account. In this way, the drawings 
can be made in round sums and the purely personal 
expenditures do not become a matter of business 
record. 

fl24. Column 5—Checks, Cash Paid Out 

Like the Cash Receipts and Bank Deposits, only 
one column is used in the Cash Journal form illus¬ 
trated herein to record both the checks and the Cash 
Paid Outs, and Column 7 will be used to show which 
class of disbursement the entry referred to was. 
When a check is issued the check number will ap¬ 
pear in Column 7 and when currency is paid out the 
word “cash” will appear in the place of the check 
number. When cash is paid out, whether it is in the 
form of a check or in currency makes no difference, 
it must be paid out for something. In other words, 
there must be value received in some way or an¬ 
other. That “value” may be “Personal Drawings” 
or one of the expenses, and therefore all amounts 
entered in Column 5—Checks, Cash Paid Out—will 
also be entered in Column 9 “Personal Drawings” or 
in one of the expense Columns, 12, 13, 14, 15, 16, or 
17, provided for the various classes of expenses, as 
explained in detail under their respective column 


— 32 — 


Uf~JUC**Sj - 


/LsCuJi— 


'n 


captions herein. When checks are paid out there is 
the check stub to go back to when postings are made 
to the Cash Journal, but as this is not true when cur¬ 
rency is paid out, there are only two possible ways 
to do in this latter case. Firstly and preferably, is 
to make the entry in the Cash Journal right at the 
time that the currency is paid out. Sometimes 
though, this is impracticable because of more press¬ 
ing duties at the moment, and therefore the only 
other course open is to make a notation on a piece 
of paper and insert it in the Cash Journal at the 
page where the entry is to be made, or in a special 
box or drawer kept for this purpose. Do not try to 
rely on memory even for five minutes, as concentra¬ 
tion on the matter which prohibited the making of 
the entry at the time is very apt to cause the forget¬ 
ting of it entirely. Then the human memory is 
faulty at the best and it is because of this that rec¬ 
ords are kept. In fact, one of the chief reasons for 
mistakes in bookkeeping is because those charged 
with the responsibility will insist on trying to rely on 
their memories, forgetting the outstanding fact that 
if their memories would keep a record of the trans¬ 
actions, there would be no need for the books. 

U25. If Money Is Paid Out for Expenses by the 
Doctor Personally 

If money is paid out for expenses by the doctor 
personally, either in currency or from his private 
bank account, the amount will be entered in Column 
10 and also in the expense column of the account 
affected. This probably will most frequently hap- 


— 33 — 



pen on “Car Expense” in the purchase of Gasoline, 
Oil, etc. Using this as an example, suppose $2.45 
worth of Gasoline and Oil is purchased for cash and 
paid for by the Doctor at the time, then the follow¬ 
ing entries would be made: Column 2—Description 
—“Gas and Oil, bought personally” Column 8—Ex¬ 
planation—“G. and O.”, Column 10—Sundry Per¬ 
sonal Credits—$2.45, and Column 15—Car Expense 
$2.45. The reason for this is that if this entry is not 
made, then the expenses which the doctor pays out 
personally are overlooked, which means again that 
Income Taxes are overpaid. The only way of course, 
that the information for these entries can be ob¬ 
tained by the Doctor’s Assistant, if the responsibility 
for keeping the books rests there, is from the doctor 
himself. 

Therefore a Memo Book to be carried around in 
the doctor’s pocket is suggested and this memo book 
used to jot down all entries which should be made 
on the books at the office, and these notes turned 
into the office daily. The use and style of this memo 
book is explained more in detail under its own cap¬ 
tion in Chapter V. The best way to do is to, as far 
as possible, make all professional expense disburse¬ 
ments from the professional bank account or the of¬ 
fice, limiting the private account to purely personal 
expenditures. Among the Professional Expenses 
though, include ALL such items as Taxes, Automo¬ 
bile Licenses, Donations, etc., whether those taxes 
apply to the residence or not, as explained more 
fully under the detailed instructions for Column 17 
—Sundry Expenses—and in the Income Tax Section. 


— 34 — 


1126. Cash Paid Out Tickets 

Cash Paid Out Tickets should be made out and 
retained, these tickets should, preferably, be a re¬ 
ceipt taken from the payee, but if not, one should be 
made out anyway so that the person responsible for 
the paying out the money has a proof of the au¬ 
thenticity of the disbursement. If these tickets are 
fastened together, or inserted in an envelope, and 
filed monthly according to months, a minimum of 
work is required, yet it is an easy matter to look up 
any desired item at any time. 

1[27. Borrowed Money Repaid 

Borrowed money repaid will be charged into 
the Personal Drawings, Column 9, for the reason that 
when the money was borrowed it was credited to 
the Personal Sundry Credits, and also because the 
repayment of a loan is not an expense any more than 
borrowed money is Income. Any interest on the 
money will be charged into Column 17, Sundry Ex¬ 
penses and the word “Interest” written in Column 
18. 

fl28. Column 6—Daily Balance, Cash and Bank 

As already stated this column is merely what is 
known as a “Memo” Account, and is the difference 
between Column 4, Receipts and Deposits, and 
Column 5, “Paid Outs and Checks,” and should at all 
times show the amount of Cash on hand and in 
bank. This figure will be correct if the amount used 
as the opening figure is right, and therefore it is 
suggested that the bank statement be procured from 
the bank and the amount on deposit be reconciled 
in accordance with the form shown here, and then 


— 35 — 


this amount, plus the amount of cash on hand which 
has not been deposited in the bank, be entered in 
Column 4—Receipts—and Column 10—“Sundry 
Credits.” The reason that it is credited to the Per¬ 
sonal Account is that, as a balance of cash on hand, 
it is capital at the date of opening of the book. It 
is not necessary to add the entire amounts in both 
columns 4 and 5 each time in order to arrive at the 
Daily Balance, but the previous day’s balance can be 
added to the day’s receipts and then the day’s paid- 
outs (whether checks or cash) be deducted from the 
sum of these two, which will leave the balance of 
cash on hand and in bank at the end of that day. 
The amount of cash on hand not deposited in the 
bank being then deducted from this balance will 
leave the net amount in the bank. 

EXAMPLE 

Previous Day’s Balance_i- $116.50 

Today’s Receipts_$ 25.00 

40.00 

60.00 

15.00 


Total Today’s Receipts_ 140.00 


Total_ $256.50 

Today’s Checks and Paid Outs- 15.00 

2.21 

30.00 

Total Checks and Paid Outs- 47.21 


Cash on Hand and in Bank; New Bal¬ 
ance for Col. 6_ $209.29 

Cash on Hand in Office, not deposited in 

bank _-— 75.00 


Balance in Bank- $134.29 


— 36 — 
















This is true every day, so by deducting the 
amount of the cash on hand in the office which has 
not been deposited in the bank, from the amount 
of the Daily Balance in Column 6, the net amount of 
the bank balance is shown. 


2 . 


3. 


fl29. How to Reconcile the Bank 

Reconciling the bank means bringing the 
amount shown on the books into agreement with the 
amount shown on the bank statement and showing 
where the differences occur. The following method 
illustrates a systematic way of arriving at this agree¬ 
ment or reconciliation. 

1. Arrange the checks in numerical order. 

Separate any “debit memos” or “credit 
memos” which may have been issued by the 
bank but the amounts not entered on the 
books. 

Enter the amounts of the “debit memos” in 
Col. 5—Checks and Cash Paid Out—with the 
correct charge in the expense column. Say, 
for instance it is a D. M. for $2.50 for printing 
checks, the charge would be entered in Col. 
14, books and stationery. Enter also the credit 
memos, but these would be entered in Col. 4, 
Cash Receipts and Col. 10, Sundry Credits, 
with a notation in Col. 8 a.s to the reason for 
the C. M. If, for example, it was for interest 
on the balance at the bank, the word “Inter- 
est” would be entered in Col. 8. 

Check off the checks which have been re¬ 
turned by the bank, preferably with a colored 
pencil, and on the line which separates Col. 5 
—Checks, from Col. 6—Daily Balance. The 


4 . 


— 37 — 


object of checking on this line is that the 
amounts will be checked as well as the check 
numbers, and so if a check has been issued for 
one amount but entered on the books in an¬ 
other amount, the mistake will be caught. 

5. Make corrections of any mistakes which have 
been discovered in this checking, and change 
the balance in Col. 6—Daily Balance—ac¬ 
cordingly. 

6. See that all deposits made to the bank have 
been included in Col. 4, Receipts, and if some 
money has been deposited, such as borrowed 
money, which has not been entered, enter it on 
the books. This also will require a change in 
the Daily balance. 

7. List the numbers and amounts of the checks 
which have not been returned by the bank as 
paid. 

8. Put the figures down in a form somewhat as 
follows: 

Balance per Bank Statement- $- 

Deduct Outstanding Checks (those not 
returned by bank) 

15 _$- 

17 _ _ 

26 _ _ 

31 _ _ 


Total Outstanding Checks deduct 


Net Balance in Bank- $ 

ADD, Cash on Hand, not deposited in 
bank - 

Total should be last balance shown in 

Col. 6_ $ 


— 38 — 



















Among the outstanding checks will be in¬ 
cluded any which have been written and entered 
in the Cash Journal but not mailed out, if there 
are any such, in fact all checks which have been 
entered in the Cash Journal but not paid by the 
bank must be included. It is seen then that by 
deducting the total of the checks which have been 
issued but not paid by the bank from the amount 
which the bank shows as on deposit there, the net 
balance in the bank is arrived at. And by adding 
to this net balance the amount of cash on hand, 
the actual amount of cash on hand and in bank is 
ascertained. This amount should, of course, be the 
same figure as that shown in Column 6—Daily Bal¬ 
ance—at the same date. And it will be if these 
instructions have been followed, and therefore if 
these two figures are not the same at any time, just 
go over the instructions carefully and see what has 
been overlooked. If these things have all been 
done the two figures must agree, unless the bank 
has made a mistake which is possible but not prob¬ 
able, and therefore it is best to work on the pre¬ 
sumption that the bank is right until after all other 
chances of error have been traced down. Then if 
it is not located add the opening balance on the 
bank statement to the deposits shown on the bank 
statement and deduct from the sum of these two, 
the total of the charges or checks shown on the 
statement. The remainder should be the balance 
on the bank statement at the end, and if it is not 
the error i.s on the statement, then the thing to do 
• is to take the statement to the bank immediately. 


— 39 — 


fl30. Column 7—Paid Outs—Check Numbers 

This column is provided for the purpose of des¬ 
ignating the class of disbursements, which should be 
shown as follows: 

Checks—By putting check number in this 
column. 

Cash Paid Out—By writing the word 
“Cash” in this column. 

Bank Debit Memos—By writing “D. M.” in 
this column. 

Of course it is at once apparent why the num¬ 
ber of the check should be shown, as without check 
numbers it is very hard to obtain the list of out¬ 
standing, but perhaps the reason for the other two 
will not be quite ,so obvious. If these two classes 
of disbursements are properly “earmarked” it helps, 
not only from the standpoint of the person keep¬ 
ing the books being able to prove why the disburse¬ 
ment was made, but also if occasion ever arises 
when it is necessary to look up the item in case of 
dispute, etc. Therefore it is strongly urged that 
each class of disbursement be correctly earmarked 
no matter what system be used to so designate 
them, or whether a form of Cash Journal such as 
shown herein be used or not. 

TJ31. Column 8—Explanation 

The purpose of this column is, as the heading 
suggests, to give an adequate explanation of the 
entries made to the Personal Accounts of “Draw¬ 
ings” and “Sundry Credits.” Never record there¬ 
fore, two distinct transactions on any one line as it 
will only tend to confuse and what is needed in * 


— 40 — 


bookkeeping is clearness. In such a case as money 
from Patients being retained by the Doctor, but it 
being desired to have the Cash Receipts Column 
show all money received, as explained under the 
caption of Column 4, enter the amount on two 
lines. On one line in Column 4, Receipts and De¬ 
posits, and Column 11—Fees, and on the other 
line in Column 5, Paid Outs, and Column 9, Draw¬ 
ings. The same way if a check for $50.00 is drawn 
for Personal Expenses and the $2.45 for Gasoline 
and Oil—(which is used as an illustration under 
Column 5) is paid out of it, use two lines. The 
$50.00 in Column 5 and Column 9 on one line, and 
the $2.45 in Column 10 and Column 15 on an¬ 
other line, with the explanation in this column, 
number 8, of “Drawings” against the $50.00, and 
G. and O. against the $2.45. While this cash jour¬ 
nal illustrated herein is adapted particularly for the 
individual practitioner, still it could be used for 
Partnerships, but in that case this explanation 
column would have to carry the initials of the 
partner affected in addition to the other explana¬ 
tion. Therefore a cash journal with more columns, 
giving two of these columns to each partner, would 
probably work better. The main object of this ex¬ 
planation column is to clearly designate the “Sundry 
Credits” such as “Dividends,” “Interest,” “Sale of 
Property,” “Borrowed Money,” etc., in fact for all 
Income or Credits which are not income from pro¬ 
fessional fees. 

TJ32. Column 9-—Drawings 

“Drawings” mean those monies which are 
drawn for purely personal expenditures, whether 


— 41 — 


those expenditures are in the nature of household 
and living expenses, or are investments in securi¬ 
ties, purchases of land, automobiles or other assets. 
In such cases, that is the purchase of Assets, it is 
better to draw the checks in payment from the 
professional account and to write an explanation 
of the amount in Column 8. In this way a record 
would be kept of these assets which might frequent¬ 
ly prove very useful, particularly to the Executors 
of the Estate. As already suggested it is better, 
if practical, to make the drawings for personal ex¬ 
penditures in round figures as it saves a lot of un¬ 
necessary bookkeeping, because if checks are drawn 
for each small personal expense it just means many 
more entries must be made. Re-payment of the 
principal of borrowed money will be charged to 
“Drawings,” but the interest would be charged in 
the “Sundry Expense” column. 

J[33. Column 10—Sundry Credits 

This column is provided so that any money 
deposited in the bank which does not come from 
professional fees can be entered on the books. It 
will also be used at year ends for crediting the 
Balance of Cash on hand and in Bank at that time, 
as previously explained under “Opening Cash Jour¬ 
nal” and again under “Year End Closings” in this 
Chapter. The items most frequently to be entered 
in this column will be “Dividends Received,” “In¬ 
terest Earned,” “Money Borrowed,” “Personal 
Money Deposited in Professional Account,” “Money 
Received from sale of Property.” In short any 
money except that received from Patients on ac¬ 
count of “Fees.” 


— 42 — 


If 34. Column 11—Fees 

Under this plan, the Receipts and Disburse¬ 
ment Plan, only cash actually received from Patients 
is considered fees. The Charges to Patients are 
not brought into Income, therefore under all ordi¬ 
nary circumstances any entry in this column Fees 
—will also appear in Column 4—Cash Received. 
The only exception will be when money is collected 
and retained by the doctor without being turned 
into the office as explained fully under the caption 
of Column 4, Cash Received—in this Chapter. Care 
must be taken to see that only the Cash Received 
from Patients is entered here and not the charges 
made to patients. If, however, a note is received 
from a Patient and is discounted with a Finance 
Company or at the bank, the amount received will 
be entered in Column 4, Cash Received and in 
Column 11—Fees. If at some future time some 
part of the note is not paid and it is necessary to 
reimburse the Finance Company, the amount re¬ 
turned to them will be entered in Column 5 and 
also in Column 17 with a notation in Column 18, 
“Fees Lost.” It cannot be called “Bad Debts” be¬ 
cause there are no bad debts as deductions from 
income under this system. Instead of charging in 
Column 17, the amount refunded could be entered 
in red ink in Column 11 and deducted, instead of 
added, when totaling the pages. If it can be re¬ 
membered to do this, that is deduct it when totaling 
the pages, it is the better way to do. Entering in 
red ink helps, but it would only be entered in red 
ink in Column 11, not in Column 5, as it would be 
added to the amounts paid out, but deducted from 
the fees. 


— 43 — 


fl35. Column 12—Use and Occupancy 

Under the title of Use and Occupancy should 
be charged all expenses which go towards main¬ 
taining the office, as an office, such as Rent, Tele¬ 
phone and Telegraph, Light, Heat and Water, Jani¬ 
tor Service, Physicians Telephone Exchange Service. 
In fact all the overhead expenses of maintaining the 
office. Where the office is kept in a distinct loca¬ 
tion from the residence, there will not be much diffi¬ 
culty in properly allocating these charges, but where 
a part of the residence is used for an office, these 
expenses should be pro-rated as explained more 
fully in the Income Tax Section. In the Name or 
Description (Column 2) will be entered in addi¬ 
tion to the name of the person to whom the money 
is paid, the reason for the payment, where such is 
necessary. For example, payments to Wm. Jones 
& Co. for rent would require (rent) written in 
brackets in order to clearly designate the reason 
for payment, but payments to Western Union Tele¬ 
graph Co. or Bell Telephone Company would be 
self explanatory and therefore would not require 
further explanation, even if telegraph charges are 
included in the telephone bills. There is no need 
for a Physician to have the minute analyses of ex¬ 
penses that business requires, therefore all the ex¬ 
penses incidental to the use and occupancy of the 
office can be posted in the one column instead of 
four or five. 

|f 36. Column 13—Salaries 

All salaries and wages paid out in the profes¬ 
sional interest will be included under this heading, 


— 44 — 


but it must be seen that these are strictly limited 
to such salaries. None of the doctor’s personal 
drawings can be included in this column for the 
reason that it is impossible to pay oneself a salary. 
In this column will ordinarily be included the 
amounts paid to office assistants, nurse assistants, 
etc., but it is also possible that some employee’s 
wages are in part a professional expense, and in 
part a personal expense. For example, a chauffeur 
might be employed whose time was divided be¬ 
tween driving the car on professional calls and for 
social purposes. In cases like this the salary would 
have to be divided in the same ratio as the services 
applied, in other words, if the chauffeur in the 
above case was employed one-quarter of his time 
in driving for professional calls, then one-quarter 
of his salary should be charged here. In such in¬ 
stances it would be better to pay the employee out 
of the Professional Account and make the charge 
through the books, charging three-quarters, or one- 
half, or whatever the correct ratio was, to salaries 
and the balance to the Personal Drawing Account. 


TJ37. Column 14—Books and Stationery 

Under this classification will be included all 
accounting books; technical magazines; carbon 
paper and typewriter ribbons; stationery such as 
bill heads, letter heads, etc., and those classes of 
expenditures which are listed more particularly 
under the Classification of Accounts under If41 of 
this Chapter. In the case of Medical Books and 
Instruments the deciding factor as to whether they 


— 45 — 



are what is known as Capital Expenditures, that is 
whether they constitute a more or less permanent 
asset, or whether they are a straight expense item, 
is how long are they good for? how long is their 
useful life? If the useful life is approximately a 
year or less they should be charged directly into 
this column. If the useful life is many years then 
they should be charged in the Personal Drawing 
Account Column and an inventory taken at the 
end of each year and Depreciation charged thereon, 
or the method as explained more fully under the 
caption of Depreciation in the Income Tax Section, 
could be followed. 

If38. Column 15—Auto Expense 

Where an automobile is used entirely for pro¬ 
fessional purposes the entire amount of the gaso¬ 
line and oil, repairs and upkeep is a professional 
expense. The automobile licenses though should 
be entered in Column 17—Sundry and marked 
“Auto License,” as these really are the same as 
taxes being paid to a political subdivision of U. S. 
Where, however, a car is used partly for profes¬ 
sional purposes and partly for personal use then 
the expenses should be divided in the ratio of their 
respective uses. In other words, if the car is used 
say, 75% for professional requirements and 25% 
for pleasure, then 75c of every dollar is a profes¬ 
sional expense. It would prove a nuisance to so 
divide every payment however, so the best way to 
do is to charge all automobile expense into this 
column during the year and then make the division 
at the end of the year, as the only reason for mak- 


— 46 — 


ing the division is for Income Tax purposes. In 
considering Auto Expense it must be remembered 
that all repairs, whether they constitute new tires 
or new batteries are nevertheless expense, but the 
purchase .of a new car is not an expense. This auto 
expense is treated from the Income Tax standpoint 
more in detail in the Income Tax Section. 

If 39. Column 16—Blank 

Every Physician is an individual, and as such 
there will be those things in each practice which 
will be individual to that practice. This column is 
left in blank therefore so that it can be used for any 
expense not otherwise provided for, which occurs 
with sufficient frequency to warrant the use of a 
separate column for that purpose. It is not ad¬ 
visable to use the column for anything that only 
occurs infrequently, for the reason that such items 
can just as well be entered in the sundry column. 
Each individual practice will dictate the use of 
this column. For example, in a partnership it could 
be used to post the drawings of one partner while 
Column 9 could be the drawings of the other 
partner. 

If40. Column 17 and 18—Sundry Expenses and Ex¬ 
planation 

In these columns will be entered those charges 
which only occur infrequently, such as Interest, In¬ 
surance, Taxes, Donations, etc., the amounts being 
entered in Column 17 and the explanation of the 
charge in Column 18. All taxes paid to City, Coun¬ 
ty and State, whether on residence property, or 


— 47 — 


property held for investment purposes, should be 
paid through the professional account, otherwise 
there is danger of overlooking them at the year end 
when preparing the Income Taxes. The .same thing 
is true of Donations to Charitable Institutions. Al¬ 
ways make a notation of what the expense was in 
Column 18 when making a disbursement chargeable 
in the Sundry Expense column. 

Tf41. Synopsis of Where to Charge Expenses 

Use and Occupancy—Column 12 

Rent. 

Heat of Office. 

Telephone. 

Telegraph. 

Light. 

Janitor’s Service. 

Water. 

Physicians Exchange Service. 


Salaries—Column 13 

All money paid for services to persons employed in 
conduct of the Profession. 

Books and Stationery-Column 14 

Accounting Books. 

Technical Magazines. 

Stationery. 

Carbon Paper and Typewriter Ribbons. 

Directories. 

Stenographers Books. 

Memo Books. 

Medical Books with Short Life. 

Office Magazines. 

Pens, Ink, Pencils, etc. 

Postage. 

Medical Instruments, with Short Life. 


— 48 — 


Auto Expense—Column 15 


On Car Used for Professional Calls. 

Gasoline and Oil. 

Tires. 

Batteries. 

Auto Repairs. 

Automobile Insurance. 

Taxi Cab Expense for Professional Calls. 

Blank—Column 16 

Use this Column for any frequently recurring charge 
which is individual to the particular practice. 
For example, a Homeopathic Physician would 
use this column for “Medical Supplies.” 

Sundry—Column 17 

Interest. 

Donations. 

Licenses and Permits. 

Association Dues, but limited to dues in Medical As¬ 
sociations, Chambers of Commerce, etc., and 
must not include secret Society dues or Social 
or Golf Club dues. 

Taxes. 

Repairs to Office or Medical Equipment. 

Insurance for Fire and Employers Liability which 
pertains to the profession. 

In fact in this classification include all charges 
which should not logically belong under either Use 
and Occupancy of the office. Salaries, Books and 
Stationery or the particular individual columns. 

1[42. Partnerships 

The special form of Cash Journal illustrated 
herein can be used for partnerships if desired, or 
stock columnar journal forms, such as that illus- 


— 49 — 



trated in Chapter VI, “Accrual Method” can be 
used. In partnerships the Partnership agreement is 
always the deciding factor, and the books must be 
arranged so as to be able to reflect this agreement. 
On the hypothesis that the agreement states that 
all fees shall go into a common pot and be divisible 
in a certain ratio, then only one fees account would 
be required, and the special Cash Journal form 
could be used, as the only thing that would be 
necessary to keep separate would be the drawings. 
This could be done in two ways, either by using 
the Personal Drawing Column 9 for both or all 
partners and designating the particular partner by 
putting his initials in the Explanation Column op¬ 
posite the amount, or if there are only two partners 
and the Blank Column 16 is not required for any¬ 
thing else, then it could be used for one partner 
while Column 9 is used for the other. If the first 
of these two plans is followed it is necessary to 
have a ledger sheet for each partner on which to 
post the individual drawings, so that a total of each 
partner’s drawings can be easily and quickly ob¬ 
tained. Even if the partnership agreement calls 
for so much “salary” to each partner, these “salary” 
amounts will be posted to their drawing accounts 
just the same, as no matter what the partnership 
agreement may call them all drawings by partners 
are a division of profits and not an expense. If the 
fees are not in common but each doctor keeps his 
own fees, and the partnership is really nothing more 
or less than a sharing of the expenses of maintain¬ 
ing the office, then it is not a partnership at all, 
and separate books should be kept for each. In 
cases like this, if each issue their own checks direct 


— 50 — 


for their share of the expenses then, of course, the 
detailed instructions already given can be followed. 
But if one issues a check for the full amount of 
rent and looks to the others for reimbursement of 
their share, then the best way to do would be to 
charge into Use and Occupancy the amount of the 
expense portion and the balance into the “draw¬ 
ings” account and then credit the drawings account 
when the reimbursements are made. When mak¬ 
ing the charge to the drawings account though, 
immediately make a charge on a separate ledger 
sheet for the share of each doctor. Perhaps the 
method will be best explained in the following illus¬ 
tration, “Doctors A, B, C and D, and Dentist E 
have offices together. Doctor “A” has signed the 
lease and is responsible to the owners of the build¬ 
ing for the rent, which he pays and collects the 
respective shares from B, C, D and E. The rent 
for the entire suite is $250.00 a month of which 
each pay $50.00. Doctor “A” will, when issuing 
the check for $250.00 charge $50.00 in Use and 
Occupancy and $200.00 in “Drawings,” Column 9, 
making a charge for $50.00 to each of Doctors B, 
C, D and Dentist E on their individual ledger sheets. 
Then when the amounts are paid they will be 
credited on the individual ledger sheets and entered 
in Column 10 of the Cash Journal as a Sundry Per¬ 
sonal Credit. The individual ledger sheets will keep 
a record of the individual accounts and if any are 
not collectible they can be charged off by making 
an entry on the Ca4sh Journal to Column 10, Sundry 
Credits and Column 17, Sundry Expenses and 
marked Doctor C’s rent uncollectible. If one of the 
larger columnar forms are used, two columns could 


— 51 — 


be kept for Rent, and other divisible expenses such 
as office assistant and the total payments made by 
Doctor “A” charged into the charge or debit column 
and the refundings into the Credit column. Then 
the difference between the two columns would be 
Doctor “A’s” net expense. 

1143. Closing Cash Journal at Year Ends 

Each month the totals of each of the columns 
of the Cash Journal will be carried to their respec¬ 
tive columns for the succeeding months, with the 
exception of course of the Daily Balance column 
which figure to be carried forward will be that of 
the last daily balance. This way of doing avoids 
the necessity of keeping a General Ledger and, on 
the Cash Receipts and Disbursements basis, is just 
as effective for the Physician. At the end of each 
year all that it is necessary to do is not to carry 
any of the items forward to the next year except 
the Cash on hand and in bank, which amount will 
be entered also in Column 10—Sundry Personal 
Credits, in exactly the same way as when the Cash 
Journal was first opened. The difference between 
Column 11—Fees and the sum of the expense 
Columns 12, 13, 14, 15, 16 and 17, will represent 
the net income for the year. 

1f44. Balance Sheet On Receipts and Disbursement 
Method 

Under the Cash Method proposed herein there 
is no general ledger used and so the Assets and 
Liabilities do not appear on the books. Therefore at 
least once a year an inventory of these Assets and 


— 52 — 


Liabilities should be taken and a record made of 
them in some small book used for that purpose. 
Wherever possible the items subject to Depreciation 
such as Medical Books and Instruments, Office Fur¬ 
niture and Fixtures, Automobile for Professional 
use, should be entered at cost and the amount of 
depreciation taken each year entered in a separate 
account correctly titled as explained more fully 
under the Income Tax section. 


— 53 — 


CHAPTER IV 


PATIENTS LEDGER 


fl45. General 

Practically all modern business is done on a 
credit rather than a cash basis, that is, the charge 
is made at one time and paid for at another time, 
and while under the Receipts and Disbursements 
method these charges are not brought into income 
until they are paid, nevertheless, it is very neces¬ 
sary to keep a clear record of them. The Patients 
Ledger therefore is the term used herein to desig¬ 
nate the system of keeping record of the financial 
transactions of each individual patient, whether or 
not the system in use keeps these records in what 
is commonly known as a “Ledger” or whether the 
accounts are kept on series of cards, or by any 
other means. Four methods of keeping the Patients 
Ledger are illustrated and explained herein, the 
author’s preference for Physicians being in the fol¬ 
lowing order, namely: 

The Visible Record, 

Ledger, 

Cards, 

Duplicate Statement-Ledger System, 
and they are therefore explained in this order. 


— 54 — 


If 46. The Visible Record 



The main advantages of the use of the Visible 
Record system, shown above, for the Patients 
Ledger, are that it is very simple and compact, and 
by having space for as many as 40 accounts on one 
page, saves considerable time in locating the various 
accounts. Also by having the accounts together 
in this way there is not the danger of mislaying any 
of the individual records that there is with the card 
system, or the trouble of turning many sheets that 
there is with the ordinary ledger. Similar forms 
and binders to that shown here are made by nearly 
all the large manufacturers of accounting supplies 
and can be procured at practically all stationery 
stores. 


55 — 


TJ47. The Account Sheet of Visible Record 



Form V-4 

The principal advantage of the particular ac¬ 
count sheet shown above is that it has been de¬ 
signed especially for the Physician, and can carry 
on the account sheet itself, all the necessary infor¬ 
mation of each charge without requiring much writ¬ 
ing. The best uses for the various columns are ex¬ 
plained as follows: 

Memo 

Write here the name of the person actually re¬ 
ceiving the service, not the name of the person fi¬ 
nancially responsible and to whom the charge will be 
made. As for example Mr. William Smith’s little 
daughter, May, receives service, write in the Memo 
Column “May.” 

Year 

Month 

On the line provided, the year date will be in¬ 
serted. In the column itself the name of the month 
will be written, in the case of charges. The day of 
the month is not necessary here as it will be shown 
by having the Code letter inserted in its proper place. 

In the case of credits, that is payments received, it 
is better to insert in this column the Cash Journal 
page on which the credit appears, as it “Ties up” 


— 56 — 






































































the two together, and makes any checking back easier. 
Also by writing a month name, such as April, for 
charges, and a number, such as C. J. 7 (C. J. standing 
for Cash Journal) for Credits, it is easier to pick out 
the charges and credits. If it is desired to have the 
date the payment was received show on the ledger it 
is suggested the following method be used. Example, 
a payment of $15.00 received on June 9, and entered 
from Cash Journal page 73. Enter in this Column 
“6 C. J. 73” and under the date Column 9 enter the 
Code letter “R.” In other words the number before 
the C. J. would show the month and the number after 
the C. J. the page of the Cash Journal, and the letter 
“R” in the date column would show the day of the 
month. 

Day Columns 

The object of having day columns is that by this 
method sufficient space for indicating all services per¬ 
formed for patients is provided in a compact form, 
so the various code letters designating the different 
classes of services can be inserted in the respective 
day column and thus show the day the service was 
rendered and the class of service performed. These 
codes are as follows: 

V. Visit to Patient. 

O. Office Calls. 

P. Prescription. 

N. Night Visit. 

C. Consultation. 

S. Surgery. 

The detail of the various charges would appear 
on the “Physicians Case Card” shown at fl56. There 
is, however, another class of charges which are very 
frequently overlooked entirely, but which are often 
a legitimate service charge, namely, “telephone.” 
Often advice and prescriptions are given over the 
telephone, and no charge made at all, whereas, if the 


— 57 — 


same service was performed in the office the regu¬ 
lar office call charge would be made. It is there- 
! fore suggested that this code be augmented by the 
letter “T” to designate such telephone service charges. 

Name, Address, Etc. 

In this space write the name, address, etc., of 
the person responsible for the payments, and all the 
amounts chargeable to that person will be kept under 
this one account. It is very poor policy to have more 
than one account with one person, that is, if Wm. 
Smith has a wife and six children, all the services 
will be charged to Wm. Smith, the particular patient 
being designated in the “Memo” Column as already 
stated. This is also true if Mr. Smith is responsible 
for other charges, say for example a niece, or some¬ 
one he had hurt in an automobile accident, all should 
be charged to his account and statements rendered 
him monthly. This monthly rendering of statements 
is considered more in detail under the Chapter on 
Collection Methods. It is an excellent practice to 
number these individual account sheets as it makes it 
possible to ascertain if one is missing or to index 
the accounts if desired. The way to number them is 
alphabetically and in rotation as Al, A2, Bl, B2, etc. 

1J48. Physicians Ledger-Loose Leaf 





PHYSICIANS LEDGER LOOSE-LEAF 































































The use of this Ledger sheet is very similar to 
that described under the caption of the Visible Rec¬ 
ord, the main differences being that the charges 
are not designated by code letters, but merely by 
check marks under the respective classes and a 
summarization of the case entered in the Memo 
column. It is not really necessary to have this case 
summarization on the ledger account for the reason 
that if the case cards are filed alphabetically and 
the ledger sheets run in the same order, it is not 
much work to look up the case card, where this in¬ 
formation can be obtained in considerably better 
detail. As with the Visible Record, it is much better 
to show the Cash Journal page on which each pay¬ 
ment appears, on the individual Ledger Accounts . 1 1 
The Ledger sheets shown above are of the loose 
leaf design and are 9%xll% inches furnished with 
4 slit holes, so there is room enough on one sheet 
for quite a large number of transactions. 


If49- Card System 



CARD INDEX GUIDE 


Another method of keeping the Patients Ledger 
is on cards, however, as far as the author knows 


- 59 - 


none of the manufacturers print any stock form for 
Physicians on cards, and therefore, if it is desired 
to keep these accounts on cards there are only two 
ways open. Either to use a straight ledger form 
composed merely of a date column, a large descrip¬ 
tion column and three monetary columns, Debit, 
Credit, Balance, or else to have special forms re¬ 
sembling the form for the “Visible Record” or the 
“Physicians Ledger” printed. This latter way is of 
course expensive. The Card System is handy and 
compact, the main objection being that there is the 
ever present danger of a card being mislaid, and 
under the Receipts and Disbursements method there 
is no “control” of the Patients Ledger and therefore 
a card could be lost in a busy office without the 
fact ever coming to light. 

TJ50. Duplicate Statement, Ledger System 



DUPLICATE STATEMENT LEDGER 


— 60 — 













































While the illustration above shows the ac¬ 
counts of a Mercantile Company, the form would 
be the same for Physicians, if this system was used 
for the Patients Ledger. The only difference be¬ 
ing that the Doctor’s name would be printed in the 
place of the Mercantile Co. The big advantage 
claimed for this method is saving of time at month 
ends, as the statements are already made out and 
all it is necessary to do is to tear the sheet out, 
which is perforated for this purpose, and mail it. 
The accounts are posted in indelible pencil and 
a carbon paper inserted between the original and 
duplicate, thus giving an exact copy of the state¬ 
ment as a permanent office record. The objection 
to this form is that it does not look as well as 
the ordinary statement form because, by being 
made out in pencil and at different times, it is 
not usually as neat as might be. Then again it 
perhaps has not as nice a professional look as the 
typed statement. 

1151. Main Points of Patients Ledger 

Whatever system is used the main points to 
remember in connection with the Patients Ledger, 
are: 

1. That the Accounts should be kept posted as 
nearly up-to-date as possible. 

2. That the transactions should be entered so 
as to be self explanatory. 

In other words charge accounts are only for 
convenience in transacting business and therefore 


— 61 — 




when a patient comes in to pay his bill, then is the 
time to get the money. But if the account is not 
posted up, it is a very good excuse for him delay¬ 
ing payment, which may then drag on for some 
indefinite time. Therefore the one whose responsi¬ 
bility it is to keep these accounts posted should 
endeavor to see that they are right up to the day, 
and that each day's transactions are posted the 
first thing on the succeeding morning. Sometimes 
this may be impractical but it should be the goal. 

fi52. Special Patients Ledger for Dentists 



VISIBLE RECORD ACCOUNT SHEET FOR DENTISTS 
Form V-5 

The only difference in the accounting problems 
of the Physician and the Dentist is in the form of 
the Patients Ledger. Everything else in this book 
applies with equal force to the Dentist as it does to 
the Physician, and the Cash Journal form illustrated 
in Chapter III, is just as applicable because the 
accounting methods required in both professions are 
identical. 


— 62 — 






























































The form illustrated on page 62 is for use with 
the Visible Record shown in fl46. If it was desired to 
use the ordinary loose-leaf ledger, there is a stock 
form embodying the same features made by the 
large stationery houses. This form is illustrated 
below. 



SPECIAL PATIENTS LEDGER FOR DENTISTS 
Form 152 


— 63 — 


































































CHAPTER V 


SUNDRY FORMS 


1J53. Office Day Book 

Sometimes it is impractical to take the time to 
make the entries in the Cash Journal or the Patients 
Ledger as and when the transaction occurs. If this 
is the case, it is suggested that a “day book” be 
used for this purpose and a record of the trans¬ 
actions made in this at the time, and then the first 
hour or two in the morning, or any part of the 
day which is the quiet period, used for making the 
entries from the day book to the permanent rec¬ 
ords. All this day book needs to be is just a paper 
covered note book such as can be purchased at 
any 5c and 10c store, ruled for one monetary 
column, the same as is shown for the Doctor’s 
Memo book, only it will be larger, of course, and 
not in loose-leaf form. 

Divide each transaction with a line, even if the 
transactions are posted to the same account. For 
example, using our friend Mr. Wm. Smith and his 
daughter “May” as an illustration again. Suppos¬ 
ing both Mr. Smith and May come into the office 
and both receive service, and then Mr. Smith pays 
$10.00 on account as he goes out. These are three 
separate transactions so do not enter them all in 


— 64 — 


one place in the day book or one of them may be 
overlooked, enter them like this: 


Wm. Smith, Office call_$3.00 

(self) 

•i •» 

Wm. Smith, Office call_$3.00 

(May) 

Wm. Smith, Received On Account_ $10.00 


The reason for writing the word “Received” 
instead of “Paid” in the day book when Patients 
pay money is that because of it being nothing but 
a posting memo, there might be danger of mixing 
it up with cash payments made, if this day book 
is used for that purpose. It is suggested, however, 
that the use of this office day book be limited to 
Charges and Receipts and that the disbursements 
made in currency be kept in accordance with the 
suggestions contained under Tf24 and Tf26 as in that 
way not only is the danger of mistakes minimized, 
but a better proof is had of the currency disburse¬ 
ments. If this day book is used, then write the 
word “entered” over the face of the day book entry 
after the transaction has been posted to the individ¬ 
ual account in the Patients Ledger, or in the Cash 
Journal as the case may be. However, do not write 
this “entered” until after the entry to the permanent 
records has actually been made for the same reason 
as that given under 1117 . 


— 65 — 













fl54. Doctor’s Memo Book 


r 

$ & cts. 



















o 
















\j — 




























A 









MEMO BOOK FORM 

The Memo Book for the Doctor to carry around 
with him serves the same purpose as the office day 
book. That is he can jot down the various items 
which need, recording on the books and then turn 
the sheet or sheets into the office daily. It is for 
this reason that a ring binder will probably be 
found to be the most convenient as the sheets could 
be torn out and turned into the office with less 
trouble than if they were contained in a bound 
book. It is a very good idea to go through and 
number the sheets first, as this gives some means 
of checking up if such should be required at any 
time. Manila envelopes could be purchased and 
these sheets, together with the cash paid out 
tickets, could be filed away in these envelopes, and 
the envelopes filed according to months. In this 
way there would only be twelve envelopes a year 
because the size of the envelope could be made to 
conform with the requirements. If this method is 
followed it will not be difficult to prove the 
authenticity of any entry in the books at any future 
time, if such proof should be required, and such 


— 66 — 
























proof frequently is required, because that is what 
bookkeeping is for—Proof! 

This Memo book can be kept in exactly the 
same way as the Office Day Book, that is, each 
transaction separated by a line, and no two trans¬ 
actions entered in the same line. For example, 
on a house call to Mr. Wm. Smith, gasoline and oil 
to the amount of $2.45 was purchased, they would 
be entered in this memo book like this: 


Gas and Oil 

$2.45 


Wm. Smith (May) 

House 


$5.00 


and the sheets turned into the office at the end 
of the day. They will then be entered in accord¬ 
ance with the instructions given elsewhere. In these 
cases as in 1J25 and Tf47. 

If55. Pocket Ledger 



POCKET LEDGER 

Some Physicians may desire to carry with 
them a pocket ledger showing the status of each 
patient’s account. This, however, duplicates the 


— 67 — 





























































work of posting, as it is essential that a Patient’s 
Ledger be kept in the office, except perhaps in the 
cases of smaller offices, when this pocket ledger 
might be used to take the place of the office ledger. 
Even in cases like this, however, it is not advised 
for the reason that anything carried around in the 
pocket is subject to being lost, and this would be a 
foolish chance to take with anything so vital as 
the “Patient’s Ledger.” Therefore if this pocket 
ledger is used it is strongly urged that an office 
ledger be also kept. If the collection methods ad¬ 
vocated herein are followed it is not believed that 
the duplication of work required to keep both 
ledgers would be necessary. 

56. Case Record Card 


r Phj .iri.n'. Cam Hrn.nl ^ 

— 'Ma. 

Pl ........ 

6* A . 

..— PhAAi^> 


^ .... qq .... JnS/q 




</ 

........ <?/ 


7 / y 1 —--- 

... 

C) 


..... 

..... ,/ 

......... 



......... r\br-*+/ ~Zd 

<rdt m4. 

_ 


7/- 

-O- 




^---/ 


FORM 135 


— 68 — 














































Probably all offices have a case record card 
somewhat similar to the one illustrated. This par¬ 
ticular card is punched for filing in a ring binder 
and is ruled on the back for a continuance of notes 
on the case. The only advantage of filing these 
cards in a ring binder instead of in cabinets is that 
the danger of losing any is lessened. It is sug¬ 
gested here that, whichever system of filing be 
used, the Case Record Card be numbered to cor¬ 
respond with the number on the Patients Ledger. 
For Example: Mr. Williams, a new patient, comes 
in and he is the eleventh “W.” His case card 
and Ledger card would be marked “W-ll,” and 
kept in this order in both the card files and the 
Patients Ledger. This way greatly facilitates the 
locating of the entire history, both financial and 
professional, of each case any time such is required. 
Suppose though, Mr. Williams was just a transient 
cash patient, the case record card would have to 
be made out but not the Ledger account. If then 
this case record card was filed under the “W” it 
would disturb the continuity of the numbers of the 
Ledger Accounts and Case Record Cards. It is, 
therefore, suggested that a division titled “Transient 
Cash Patients” be kept of the Case Record Cards, 
and that the cards in the division be filed alpha¬ 
betically after the “Z” of the regular patient cards. 
It would then be unnecessary to number these 
cards and the regular system of numbering would 
be undisturbed. 

|f57. Duplicate Prescription Form 

Another way of keeping record of all services 
is to use a duplicate prescription form instead of 


— 69 — 


the Office Day Book and Doctor Memo book. A 
suggested form for this purpose is as follows: 


ORIGINAL 

Prescription No. 

CHARGE_ 

ADDRESS_ 

PATIENT_ 

V. O. P. N. C. S. T. 

3 


M.D. 


These prescription forms would be made and 
numbered in Duplicate, the original being on white 
paper and the duplicate on some colored paper. 
A carbon paper between the original and duplicate 
makes only one writing necessary, and the carbon 
will remain in the office and will be used as the 
posting medium to the Patients Accounts on the 
Receipts and Disbursements Method; or the Cash 
Journal or Service Record Journal on the Accrual 


— 70 — 










Method. If this system is used it should be used 
even when no prescription is written, in order that 
the duplicates will give a complete record of all 
services. The number of the form bearing the 
charge should be posted to the individual account 
in the Patients Ledger as well as the amount of 
the charge, and then the duplicate filed in numer¬ 
ical order. Then should occasion demand the look¬ 
ing up of any charge it would only require a matter 
of minutes to locate it. The letters under the ad¬ 
dress signify the class of service, and are the same 
as those listed under 1f47. A ring put around the 
proper letter will sufficiently designate the class of 
service without giving the information to others. 


CHAPTER VI 


ACCRUAL METHOD 

jJ58. Opening Discussion 

As already explained in Chapter II, the advan¬ 
tages of the Accrual Method of bookkeeping are 
that it properly allocates to each period the income 
and expenses applicable to that period irregardless 
of when the actual payments may be made. But 
because of this a greater knowledge of book¬ 
keeping, and more books, are required than under 
the Receipts and Disbursements Method. There is 
no question, however, but that the accrual method 
more accurately reflects the income for any single 
given period, and the only reason that it is not 
recommended here for the average Physician, is 
because ft is more complicated. These brief in¬ 
structions are being included though in order to 
assist any doctor who prefers to keep his ac¬ 
counts this way. 



LEDGER SHEET—Form 371 


The General Ledger, which might be called 
the principal book of the accounting system, is a 
self balancing ledger to which is posted, in more 


— 72 — 




























































or less summarized form, the facts recorded in 
detail in the Cash Journal or other subsidiary 
books. While such a Ledger could, and often is, 
used with the Receipts and Disbursements method, 
still the use of such a Cash Journal form as illus- 
strates that method here makes it unnecessary. But 
with the Accrual method it is different, there must 
be some book in which to post the general ac¬ 
counts whether that book be called “General 
Ledger” or by some other name. The accounts 
kept in the General Ledger do not include the in¬ 
dividual accounts with the Patients, which will be 
kept in the same way as explained in Chapter IV. 
Nor do they include the individual accounts with 
creditors. But these accounts are merely summar¬ 
ized in the General Ledger under the title of 
“Patients Accounts Receivable” and “Accounts 
Payable.” These General Ledger Accounts, that 
is the difference between the debit and credit 
sides of the accounts, should be the same amount 
as is shown by adding up the different accounts 
in the Patients Ledger or the Accounts Payable 
Ledger as the case may be. Because these ac¬ 
counts are posted in total from the posting medium, 
that is the Cash Journal or Service Journal, they 
are what are called “Control Accounts.” In other 
words, the theory is that there is less chance of 
error in the one posting in total, than there is in 
the numerous individual postings which together 
make up that total. Therefore, the one posting in 
total is said to “Control” the numerous postings 
made to its subsidiary. Under the Accrual Method 
then the General Ledger Account of “Patients Ac¬ 
counts Receivable” will control the Patients Ledger, 


— 73 — 


that is, the balance between the Debits and Credits 
of the General Ledger Account should agree with 
the sum total of the individual balances in the 
Patients Ledger. If they do not agree, the only 
thing to do is to check back all the postings in an 
endeavor to locate the error. 

Besides the Patients Accounts Receivable and 
Accounts Payable, the General Ledger will contain 
all the Asset and Liability and Income and Expense 
Accounts. And this is the best order to have them 
appear in the General Ledger, namely, first all 
the Asset Accounts, next all the Liability Accounts, 
then the Income Accounts, and lastly the Expense 
Accounts. The reason for this is that by this ar¬ 
rangement the monthly Trial Balance will run in 
the same order in which the accounts appear on 
financial statements, and therefore will facilitate 
the preparation of those statements. A suggested 
order for the General Ledger Accounts together 
with a lettered classification and index is as fol¬ 
lows: 

Al. Cash on Hand. 

A2. Cash in Bank. 

A3. Patients Accounts Receivable. 

A4. Patients Notes Receivable. 

A5. Medical Books. 

A6. Professional Instruments. 

A7. Office Furniture and Fixtures. 

A8. Automobile. 

A9. Deferred Charges. 

Bl. Accounts Payable. 

B2. Notes Payable. 

B3. Patients Notes Discounted. 


— 74 — 


B4. Accrued Expenses. 

B5. Reserve for Depreciation, Medical Books. 

B6. Reserve for Depreciation, Professional Instruments. 
B7. Reserve for Depreciation, Office Furniture and Fix¬ 
tures. 

B8. Reserve for Depreciation, Automobile. 

B9. Net Worth. 

Cl. Fees. This can be divided into as many Classifi¬ 
cations as desired. For example: The Income 
from Office Calls, Home Calls, Night Calls, etc., 
could all be kept separate. If this is desired then 
they would be numbered Cl for office calls, C2 
Home calls, C3 Night calls, etc. 

C2. Interest Received, Patients Notes. 

C3. Interest Received, Sundry. 

C4. Miscellaneous Income. 

Dl. Rent. 

D2. Telephone and Telegraph. 

D3. Salaries. 

D4. Heat, Light and Water. 

D5. Janitor’s Service. 

D6. Books and Stationery. 

D7. Postage. 

D8. Auto Expense. 

D9. Licenses and Permits. 

DIO. Association Dues. 

Dll. Interest Paid. 

D12. Taxes. 

D13. Donations. 

D14. Sundry. 

Tf60.—Opening General Ledger 

In opening the General Ledger on the accrual 
method it would be necessary first to take an in¬ 
ventory of all the Assets and Liabilities and to 
make a Journal Entry of them for posting to the 


General Ledger. The differences between the As¬ 
sets and Liabilities to outsiders being posted to the 
Net Worth Account. 


Dr. Cr. 

For Example: 

Cash Imprest Fund_$ 50.00 

First National Bank_ 1,763.15 

Patients Accounts Receivable_ 9,243.85 

Patients Notes Receivable_ 750.00 

Medical Books_ 1,000.00 

Professional Instruments_ 2,500.00 

Office Furniture and Fixtures_ 950.00 

Automobiles_ 1,500.00 

Deferred Charges_ 145.00 

Accounts Payable_ $ 235.00 

Patients Notes Discounted_ 500.00 

Accrued Expenses_ 75.00 

Reserve for Depreciation— 

Medical Books_ 250.00 

Prof. Instr._ 750.00 

Office Furniture and 

Fixtures _ 95.00 

Automobile_ 375.00 

Net Worth_ $15,622.00 


These inventories would be taken in the follow¬ 
ing manner: 

Cash Imprest Fund by setting aside $50.00 or 
$75.00, as the individual requirements might be, 
for use of the office in paying small bills which 
are easier to be paid in currency than by check. 
The method of handling an imprest fund is ex¬ 
plained under lj64. 

Cash in Bank by making the reconciliation as 
shown under 1J28. 


— 76 — 
















Patients Accounts Receivable by listing the 
open balances shown on the Patients Ledger. If 
there are any credit balances deduct the sum of 
these credit balances from the sum of the debit bal¬ 
ances and enter the difference, as the General 
Ledger control will merely show the net amount 
owing from patients, because it would be a nuisance 
to try and keep credit balances separate in the 
General Ledger. 

Medical Books. 

Professional Instruments. 

Office Furniture and Fixtures. 

Automobiles. 

If the cost of these are known enter the cost 
price here and then place a present day valuation 
on them, and enter the difference between the 
cost and the present value in the respective Reserve 
for Depreciation Accounts. The book value, which 
is the difference between the asset accounts and 
the respective Reserve for Depreciation Accounts, 
would then be the same as the present day valua¬ 
tion. If the cost price is not known then the only 
thing to do is to enter the present day valuation in 
the Asset Accounts and make no entry in the Re¬ 
serve for Depreciation Accounts. 

Deferred Charges. Take the professional insur¬ 
ance policies, such as Employers’ Liability, Automo¬ 
bile, etc., and compute the amount of unearned 
premiums. The same is true with other prepaid 
expenses, such as rent paid in advance. The one 
account of Deferred Charges can be used for all 
with just a notation in the “Memo” column of the 


— 77 — 


General Ledger stating what the item applies to, 
such as “Prepaid Rent,” “Unexpired Insurance,” 
etc. 


Accounts Payable. A list of the unpaid in¬ 
voices will be prepared and the total entered as a 
credit to the Accounts Payable Account in the Gen¬ 
eral Ledger. It is better also to open an account 
with each individual in an Accounts Payable 
Ledger, than it is to try and keep record of them 
merely by an unpaid invoice file. The latter way 
is possible but is more conducive to mistakes. 

Patients Notes Discounted should represent all 
the notes which are included in the asset account 
of Patients Notes Receivable, but which have been 
discounted, with the Doctor’s endorsement thereon, 
and not yet paid by the maker. Care must be taken 
to see that only such notes as are included in the 
asset account are included here. 

Accrued Expenses such as wages earned but 
not due, Interest accruing on notes, etc., will be en¬ 
tered in this account and earmarked in the same 
way as suggested for the Deferred Charges. 

Reserve for Depreciation Accounts. The rea¬ 
son that these accounts should be kept and the 
amounts of Depreciation credited here instead of 
to the Asset Account, is that if this is not done the 
cost price is lost track of and the yearly deprecia¬ 
tion charge becomes wrong, because of the cost 
price being reduced. 

The Net Worth will be the difference between 
the Assets and the Liability and Reserve Accounts 


— 78 — 


and by entering the figure to the Credit of the 
Net Worth the General Ledger is open, and in 
balance. 


Tf61. Trial Balance General Ledger 

Under the Accrual Method it is necessary to 
take what is known as a 'Trial Balance” of the 
General Ledger each month. This trial balance 
means a listing of the accounts appearing in the 
General Ledger to see that the total of the debits 
and credits agree. It may be taken in two ways, 
either a balance of totals or a balance of balances. 

To Illustrate: 


Balance of Totals Method 


Debits 

Cash _$ 9,360.00 

Patients Accts. Rec._ 11,490.00 

Net Worth_ 6,320.00 


Credits 
$ 5,420.00 
6,380.00 
15,370.00 


Total 


$27,170.00 $2,7,170.00 


Balance of Balances Method 

Cash _ 

Patients Account Rec._ 
Net Worth_ 

Total_ 


Debits Credits 

$ 3,940.00 $_ 

5,110.00 

9,050.00 

_$ 9,050.00 $ 9,050.00 


The latter method is the one usually used for 
the reason that it gives the true figures of the ac¬ 
counts. 


— 79 — 























The mere fact that the trial balance balances 
does not necessarily mean that the accounts are cor¬ 
rect, but merely means that the debits and credits 
in the General Ledger are equal. In other words, 
it just proves that each debit has its offsetting 
credit, but does not prove that each item has been 
posted to its correct account. The General Ledger 
may be in balance but still contain numerous mis¬ 
takes. It is for this reason that it is suggested 
that some code number, such as that shown in the 
classification of the General Ledger accounts in 1J59, 
be used to indicate posting instead of merely plac¬ 
ing a check mark against the item in the Cash 
Journal. This is for the reason that a check mark 
does not show to which account the item was posted 
whereas the use of the code system does, thereby 
facilitating any checking back which may be neces¬ 
sary. If a run of these General Ledger Accounts 
shows that it is out of balance, the sure way to find 
the error is to check the postings back. Short cuts 
do not usually pay, still if the difference between 
the two sides is divisable by 9, keep an open eye 
for a transposition, like 87 posted as 78, or $10.00 
posted as 10 cents. If the differences are Is or 
series of Is it is probably a mistake in addition. 

1162. Cash Journal for Accrual Basis 



— 80 — 


































There are many different forms of columnar 
Journals made but none of them are really correct¬ 
ly designed to meet the needs of Physicians offices. 
It is therefore a question of choosing that which 
is nearest to the individual requirements, and the 
form illustrated on page 80 will, it is believed, come 
nearer to meeting these requirements for Physicians 
who desire to keep their books on the accrual basis, 
than any of the other stock forms. 

In order to best explain the principles involved 
the following suggested headings for the various 
columns are given, starting from left to right. 


Bank 

Deposits_*_Column 1 

Checks_ “ 2 

Date _ “ 3 

Name or Description_ “ 4 

Check Number_ “ 5 

General Ledger 

Debits_ “ 6 

Credits -.- “ 7 

Patients Accounts 

Debits_ “ 8 

Credits - “ 9 

Accounts Payable 

Debits_ “ 10 

Credits-- “ H 

Personal Accounts 

Debits_ “ 12 

Credits --:--- “ 13 

“ 14 

“ 15 


Fees _ 

Miscellaneous Income 


— 81 — 


















Expenses 

Use and Occupancy_ “ 16 

Salaries_ “ 17 

Books, Stationery and Supplies- “ 18 

Auto Expense _ “ 19 

Blank _ “ 20 

Sundry _ “ 21 

Explanation of Sundry_ “ 22-23 


fl63. Bank Deposits—Checks 

All receipts should be deposited to the Bank 
in total, a Petty Cash Imprest Fund being used for 
disbursements made in currency. The checks will 
be entered numerically and charged to their correct 
account in addition to being entered in the “check” 
column. The Totals from each of these columns 
will be posted to the General Ledger monthly, and 
the bank reconciliation will be made to the balance 
of the General Ledger account with the bank. 

If64. Petty Cash Imprest Fund 

The object of using an Imprest Fund is so 
that all receipts can be deposited to the bank in 
total without any deductions being made for cur¬ 
rency disbursements. The way to start the imprest 
system is to issue a check for the amount required 
(usually enough to do for about a week) drawn 
in favor of “Petty Cash” and charged to account 
listed as A-l in Tf59. This General Ledger account 
is then never disturbed, unless the amount of the 
fund is changed, because a reimbursement check is 
made to the fund for the sum of the expense 
tickets, which amounts are charged into their re¬ 
spective expense accounts from the check. In this 
way the amount of the fund is always represented 
by cash or expense tickets or both. 


— 82 — 









1165. General Ledger Debits and Credits 

The General Ledger Columns are to provide 
space to record infrequent transactions, such as the 
purchase of new equipment of any kind, which 
would of course be entered in the Debit Column. 
Or the receipt of interest or other Sundry Income 
which could be entered in the Credit Column. 
Postings from these two columns will have to 
be made individually to their respective accounts 
in the General Ledger, and not just the monthly 
totals which are sufficient in the case of the other 
columns. 

If66. Patients Accounts Receivable 

The philosophy of “Control” accounts is mere¬ 
ly that the whole is equal to the sum of its parts. 
In other words if the totals of the debit and credit 
columns of the Patients Accounts are made up of 
hundreds of entries to the individual patients, still 
the difference between these totals will be the 
same as the sum of the differences between the 
charges and credits of the hundreds of individual 
accounts making up these totals. Therefore if the 
opening balance agrees, the posting these totals to 
the General Ledger will give the same figure as the 
sum total of the open balances appearing on the 
Patients Ledger at the end of the period. For this 
reason the General Ledger account is said to 
“Control” the Patients Ledger. If at any time it 
does not agree, there really is no “royal road” 
that can be used with any degree of certainty, 
the only thing to do is to check back and see that 
all items posted to the General Ledger account 


— 83 — 


have been posted to the individual accounts in the 
Patients Ledger and vice versa. Different forms of 
Patients Ledgers are shown in Chapter IV. 

If67. Accounts Payable—Debits and Credits 

The number of different accounts in the Ac¬ 
counts Payable will decide whether to keep a 
separate Accounts Payable Ledger or to keep the 
individual accounts in the General Ledger. The 
object of having the summary, or control, accounts 
in the General Ledger is because a large number 
of General Ledger accounts is cumbersome. There¬ 
fore if there are, on the average, forty or fifty 
accounts payable always open, it is much simpler 
to use a separate ledger for the individual accounts 
and to just keep a summary account in the General 
Ledger. This General Ledger account would be 
conducted in all respects like the control account 
of the Patients Ledger. That is only the totals of 
the Accounts Payable Columns in the Cash Journal 
would be posted to the General Ledger each month. 
If, however, there are only 10 or 12 open accounts 
on the average, the individual accounts could just 
as well be kept as Trial Balance accounts. This 
would mean that there would be no account titled 
"Accounts Payable,” but that the balance of each 
of the individual accounts would be necessary in 
order to prove that the General Ledger was in 
balance. 

fT68. Personal Accounts—Debits and Credits 

Anything in the nature of personal Drawings 
will be charged into the personal account, and 
any income from Dividends on Stocks or from other 


— 84 — 


sources except professional income can be credited 
to this account. Or they could, if desired, be 
credited to the Miscellaneous Income as explained 
under 1f70. It is better though to keep the profes¬ 
sional income separate from income from outside 
sources. In other words to credit Interest on 
Patients Notes to Miscellaneous Income, but Interest 
on Bonds to the Personal Account, with a correct 
notation on the Ledger Account. 

69. Fees 

Under the accrual method the fees are brought 
into income as and when the charges are made re¬ 
gardless of when they are to be paid, and there 
fore all fees should be entered here and posted 
once a month to the General Ledger. If it is de¬ 
sired to separate these fees into various classifica¬ 
tions of service, a stock journal form such as is 
illustrated below could be used, or some of the 
columnar sheets placed at the back of the book 
and kept for this purpose. 



SERVICE JOURNAL 


This form of service journal is not advised, but 
is being illustrated here because it is the only stock 
form on the market at present. The reason that 


— 85 — 



















































it is not advised is that it is not self balancing, and 
if it is decided to use it, the column for Patients 
Accounts, as such, should be ignored entirely, one 
of the columns being used for “Fees Total” and the 
other columns for the classification of those fees. 
For example, $100.00 charge for surgery would be 
entered under “surgery column” and also under 
“Patients Charges” Column, which would be re¬ 
headed “Fees Total.” In this way the sum total 
of the Classification columns should equal the total 
of the fees column both here and in the Cash 
Journal. 

The author of this book is not designing any 
special Cash Journal for the Accrual Method of ac¬ 
counts for Physicians because he is of the opinion 
that the Receipts and Disbursements Method is 
much better adapted to their profession. 

fl70. Miscellaneous Income 

Interest on Patients Notes, or other Miscellane¬ 
ous Income will be credited in this column. If 
there are interest bearing notes due at the end of 
the year, the amount of interest which has accumu¬ 
lated but not been paid should be computed and a 
charge made to an account titled “Interest Receiv¬ 
able” and credited into this column. This charge 
would have to be made through the “General 
Ledger” column in this Cash Journal as that is 
the purpose of having those columns, to provide a 
place for infrequent charges and credits. This 
Miscellaneous Income column will not be posted to 
one General Ledger account but at the end of each 
month the column will be analyzed, that is, like 


— 86 — 


items will be added together and posted to the 
respective accounts in the same way as explained 
under expenses. 

|f 71. Expenses 

The heading of the expense columns are ex¬ 
actly the same as those suggested for the Receipts 
and Disbursements method and therefore reference 
is made to 1f3 to 1J41, inclusive, for more detailed 
explanation. The only difference being that on the 
Cash Method the expenses are not entered until 
they are paid, and also a more complete analysis 
is suggested for the accrual method. This can be 
accomplished without the use of additional columns 
by going back over each column at the end of 
the month and listing like items together. As an 
example, take “Use and Occupancy,” the total of 
the column is $163.85 made up of the various 
items as follows: 


Rent __$100.00 

Telephone and Telegraph- 35.50 

Heat, Light and Water- 13.35 

Janitor Service- 15.00 


Total_$163.85 


These items would be listed at the bottom of 
the column and posted to the General Ledger from 
there. 

If72. Balancing Accrual Method Cash Journal 

Reference is made to If62 and the suggested 
headings for the various columns of the form which 


— 87 — 








heads that paragraph. If this form is followed, the 
sum total of the following debit or charge columns, 
namely: 


Col. 1. 

Deposits 

u 

6. 

General Ledger Debits. 

a 

8. 

Patients Accounts Charges 

a 

10. 

Accounts Payable Debits. 

a 

12. 

Personal Account Debits. 

a 

16. 

Use and Occupancy. 

u 

17. 

Salaries. 

a 

18. 

Books, Stationery and Supplies. 

a 

19. 

Auto Expense. 

a 

20. 

Blank. 

a 

21. 

Sundry. 


Should at all times equal the sum total of the 
following credit columns, namely: 

Col. 2. Checks. 

“ 7. General Ledger Credits. 

“ 9. Patients Accounts Credits. 

“ 11. Accounts Payable Credits. 

“ 13. Personal Account Credits. 

“ 14. Fees. 

“ 15. Miscellaneous Income. 

which should balance not only at the end of each 
page, but also on every line. 


— 88 — 


SECTION II 


COLLECTIONS 


H73. With Whom to Open the Account 

Always see that the account on the Ledger ■ 
Sheet is opened in the name of the person who is 
being held responsible for the payment of the bills. 
Even in the case of a wife, open the account in 
the name of the husband, unless the wife is in¬ 
dependent financially and pays her own bills. It 
is a psychological fact that a bill made out to the 
person actually charged with the payment of it 
carries more weight with the debtor, in the vast 
majority of cases, than if made out to someone else, 
even if there is no question as to the responsibility 
for the payments. 

Therefore when a new patient comes in it 
should be the duty of whoever has charge of the 
books, to find out who is to take care of the bills 
and to open the account in that name. Then all 
charges made to anyone for whom that person is 
financially responsible should be kept on that one 
Ledger Sheet. 

fl74. What Charge Accounts Are 

The object of having charge accounts is mere¬ 
ly for convenience in transacting business, and is 
not intended to be for the purpose of financing 
anyone. Therefore when a charge account is opened 
it becomes another responsibility of the person ac¬ 
cepting the account to ascertain that this is the 


— 89 — 


real reason for opening it. In the different branches 
of the Medical Profession, however, a certain 
amount of charity work is perhaps unavoidable, 
and it is not always known at first which are to 
be charity cases. In most instances though, a little 
judicious questioning when the case is accepted 
will soon reveal whether it is to be a charity case 
or not. If it is to be a charity case, there is noth¬ 
ing to be gained by opening an account in the 
Patients Ledger at all. All the necessary informa¬ 
tion can be contained on the “Case Record Card.” 
Such Case Record Card should then be filed under 
a separate section titled “Charity Cases.” It is cer¬ 
tainly no use having the Patients Ledger contain a 
lot of accounts which, it is well known, will never 
be collected. This matter of “judicious question¬ 
ing” may be done by the Doctor himself, and he is 
in an excellent position to do it, as he can inquire 
about relatives and ask other personal questions 
which seemingly would be merely as an aid to’ 
diagnosis, but which in reality will serve the dual 
purpose. If left to a third party such as the doc¬ 
tor’s office assistant, the conversation should in¬ 
clude a suggestion to the effect that in coming 
to the Doctor for professional services, a contractual 
obligation has been assumed, just as much as if 
merchandise instead of services were involved. 
This, of course, would have to be handled diplomat¬ 
ically, and would be better to be done by inference 
rather than by direct statement. The most satis¬ 
factory way to stress this contractual relationship 
is to ask for and receive a definite understanding 
as to how the account will be taken care of. 


— 90 — 


fl75. Definite Understanding Regarding Payments 

There need be no embarrassment about asking 
for terms of payment. A straightforward, “How 
do you wish to take care of the Account” is just as 
applicable to the sale of services as it is to the 
sale of merchandise. And if the Patient has other 
charge accounts; and most of them have of one 
kind or another; words to this effect have been 
heard many times. Because the personal relation¬ 
ship is much closer in the sale of services than it 
is in the sale of merchandise, does not alter the 
fact that basically the conditions are exactly the 
same. Namely that value is being sold today for 
which payment is expected in the future. And 
herein lies one of the reasons that members of the 
Medical Fraternity are generally looked upon as 
being poor business men. If the mental attitude 
of the seller is one of diffidence regarding the dis¬ 
cussion of the terms of payment, it is only natural 
that an attitude of indifference to it is created in 
the mind of the buyer. While physicians, of all 
people, should realize the truth of this psychology, 
and probably do, as a class they have ignored it. 
In fact here is where the first change must come, 
from within the profession, before any change in 
the public attitude of “paying the doctor last” can 
be expected. And the logical place to start this 
change is for each individual practitioner to do his 
part and to see that there is an explicit under¬ 
standing, a definite meeting of the minds, as to the 
amount of the charges and the terms of payment 
in every case accepted. This does not mean that 
the profession would develop into a profession of 


— 91 — 



Shylocks, neither does it mean that charity cases 
will not continue to be accepted. But it does mean 
that when any charity case is taken it is known in 
advance that it is a Charity case, not only by the 
Doctor but by the Patient. There are any number 
of people who would not accept charity as such, 
but who have no hesitation in forgetting the pay¬ 
ment of their bills. If every one realized that there 
were but two classes of patients “Charity” and 
“Pay,” personal pride would be of real assistance 
to the Doctor in keeping down the amount of the 
losses and charity to a reasonable figure. When 
the terms of payment have been arrived at, a nota¬ 
tion of them should be made on the Ledger Sheet, 
so that they will not be forgotten. 

1}76. Monthly Statements 

The Patient is entitled to, and should receive, a 
statement of the account at least once a month. 
The practice of only sending out statements at very 
irregular intervals is not only unbusiness-like, but it 
is unfair both to the Doctor and to the Patient. It 
is unfair to the Doctor because it keeps him out 
of the use of the money, and even if the money is 
not really needed and the ultimate collection abso¬ 
lutely certain, it is still unfair. Because the 5% or 
6% interest the money could be earning would soon 
pay many times the cost of sending the statements 
out, and still leave a profit. It is unfair to the 
Patient because if in ignorance of the amount owing, 
the natural tendency is to forget it. Moreover, the 
longer it goes the harder it is to pay it. Remember 
nobody likes to “pay for a dead horse” and if state- 


— 92 — 


ments are not mailed out regularly, the item soon 
becomes a “dead horse” in the mind of the debtor. 

77. When to Mail Statements 

The general rule is that statements should be 
mailed once a month, preferably on the last day of 
the month, so that they will be received by the 
Patients on the first day of the succeeding month. 
The truth of the proverb that “the early bird 
catches the worm” has been proved as being par¬ 
ticularly applicable to collections. This is easily 
understandable when one stops to consider that a 
statement arriving when the money is on hand 
stands a lot better chance of being paid, than one 
arriving when there is a doubt as to whether there 
is enough cash on hand to carry on until next pay 
day. Make it a rule therefore that statements must 
be in the mail on the last day of the month. Like 
all good rules though, this one also has its ex¬ 
ceptions. In cases where the understanding has 
been that payment will be made on dates other 
than the first, it not only does no good to mail 
a statement then, but it positively does harm, as 
it tends to create an antagonistic feeling in the 
mind of the recipient. The best way to keep track 
of these odd day payments is, in addition to making 
the notation on the individual’s account sheet, to 
keep also a date index system like that illustrated 
on page 94, and to put a notation of the name and 
amount of payments due in a date section pre¬ 
ceding by two days that on which they fall 
due. Then look through the file each day and 


mail those statements out which apply to that day, 
so that the patient receives the statement on the 
day, or the day before, the payment becomes due. 



fi78. Guarantors 

It often happens that someone gives a verbal 
guarantee, or what amounts to a guarantee, for 
the account of another, but when actual payment of 
the bill is requested collection cannot be made. In 
all cases therefore, where one person guarantees 
the account of another for whom there is no actual 



states the fact will do. A letter from the guaran¬ 
tor would be perfectly satisfactory, or some such 

statement as “I hereby authorize Dr- 

to charge to my account such services as may be 
necessary (or specific if such is demanded) to be 

performed for Bill Jones, signed-” 

or “I hereby guarantee the account of Bill Jones 

up to and including $--- 

Signed___” These could 

be written on the Doctor’s letterhead, and would 


— 94 — 









save any arguments when the bill was presented. 
They can be obtained if asked for at the time with 
the statement that office routine requires it. 

fi79. Amount of Charges 

“Half a loaf is better than no bread,” and it 
is therefore much better to make a charge that will 
be paid than to make one which by its size discour¬ 
ages the patient from even trying to pay it. Be¬ 
cause this is a fact, when the average person gets 
into debt so far that they cannot see how they are 
ever going to pay it, they stop making any attempt. 
With services then it is much better to charge 
$10.00 and get it, than it is to charge $100.00 and 
get nothing. The patient’s ability t'o pay should be 
the basis of the charges. 

While the individual practitioner is hardly in 
a position to ascertain the financial status of his 
patients, he has at his disposal, in many cities, an 
organization which is in a position to obtain such 
information, namely the Medical Finance Com¬ 
panies. Furthermore, if these Medical Finance 
Companies in the different cities could be organized 
to co-operate with each other in credit, collection, 
and financial status information, an almost in¬ 
valuable service to the Medical World could be 
rendered. 

fl80. Medical Finance Companies 

One of the means devised for assisting both 
the Doctor and the patient from the financial angle, 
is the plan of Medical Finance Companies which 
are in operation in many different cities. This plan 


— 95 — 


in brief is as follows: “A company composed of 
local Medical and Dental doctors is organized for 
the purpose of loaning money to desirable patients 
for medical, surgical or dental services. Subscrib¬ 
ing members have the right to send patients to the 
Finance Company, who loan them the required 
amount on the security of their note with two en¬ 
dorsers. This note bears interest at the rate of 8 % 
and is repayable in weekly or monthly installments. 
The Doctor receives 95% of the face of the note 
immediately and, as he is not an endorser on the 
note, he is in no way responsible for the payment. 
This 5% discount may represent a saving to him as 
it avoids the necessity of making the monthly col¬ 
lection. This plan also is an assistance to some 
patients as it permits them to have necessary work 
done immediately and to spread the payments over 
a year. 

fl81. Synopsis of Collection System 

As with anything else there must be a system 
in order to effectively maintain collections, and no 
matter what system is used it must be followed, 
and followed consistently, or it is of absolutely 
no value. A poor system that is followed is much 
better than a good system that is not followed. To 
facilitate the understanding of the suggested sys¬ 
tem of collections outlined here, the main points 
are summarized as follows: 

1. Keep all accounts posted as nearly up-to- 
date as possible. 

2. Have only one account sheet for each per¬ 
son responsible for charges. 


— 96 — 


3. Come to definite understandings regarding 
payments. 

4. Make notation of these terms on individual 
Ledger sheet. 

5. Obtain written confirmation from guaran¬ 
tors of accounts they guarantee. 

6. Obtain sufficient information regarding 
patients as will permit their being located 
if they move. 

7. Mail statements regularly. 

fl82. Collection Agencies 

It is the author’s opinion that resort should 
be made to Collection Agencies only when all other 
means have failed, and then great care should be 
exercised in the selection of the agency, as the 
indiscriminate placing of accounts in their hands 
is liable to do much more harm than good. It is 
believed that if the suggestions contained here are 
followed there will be little need to turn over ac¬ 
counts to them at all, and this opinion is strength¬ 
ened by the fact that it is the exception when the 
name of a well managed business is found among 
the clients of a collection agency. And Physicians, 
being their own business managers, have the power 
to see that their’s is a well managed business. 

fl83. Statement Stickers 

The use of stickers on statements of past due 
accounts sometimes proves effective, and are better 
than the common “Please Remit” which is not only 
liable to cause offense, but by its constant use 
has lost much of its power. Such “stickers” are 


— 97 — 


made by different manufacturers and are carried 
in stock at most stationery stores. The best system 
of collection “follow ups” though, are undoubtedly 
the personal call, telephone calls and letters. Some 
suggested forms of letters are given here: 

J[84. Requirements of Collection Letters 

1 Individuality is a letter’s strongest point, and 
therefore anything savoring of the stereotype 
should be avoided as far as possible. The verbatim 
use of the sample letters given here is not advised 
for that reason, and also because they are not 
written with that use in view, but merely for the 
purpose of illustration and suggestion. In the 
construction of a collection letter the personality 
of the debtor should be considered, as the same 
tactics that succeeded in one case would not neces¬ 
sarily succeed in another. And here is where the 
Physician has a tremendous advantage over the 
business house, as he is personally acquainted with 
every one of his patients, and therefore should ex¬ 
perience no such difficulty as is experienced by col¬ 
lection managers of large business houses in their 
attempt to visualize their correspondents. Briefly, 
a collection letter should be a straightforward re¬ 
quest for payment without containing any excuses 
for making that request. No excuse is necessary 
and statements to the effect that “we need the 
money” very often detract rather than add to the 
force of the letter. Any attempt at witticism should 
be avoided as what might seem funny to the writer 
would not seem funny to the recipient. Moreover, 
any form of banter or excuse in a collection letter, 


— 98 — 


besides actually hurting the value of the letter, 
certainly does not tend to raise the dignity of the 
writer. But a straightforward request for pay¬ 
ment not only preserves the dignity of the Doctor, 
but admits the intelligence of the debtor. 

^85. Four Sample Letters 

In any form of collection letters, the object 
should be not only to get the money, but also to 
retain the good-will of the debtor. Therefore the 
first letter should avoid, as far as possible, any sug¬ 
gestion of curtness or anger. 

A. M. PHYSICIAN, M.D. 

Health Center, 

Missouri 

May 8, 19__ 

Mr. Wm. Smith, 

City 

Dear Mr. Smith: 

As we are convinced that you are a man 
of your word, we do not think that you have for¬ 
gotten the fact that you promised to pay us 
$15.00 on Tuesday, May 5th. 

So we feel that something unforeseen must 
have come up, but that you felt embarrassed 
about coming in and telling us. 

Do not feel this way about it; we realize 
things will occasionally happen to us all to pre¬ 
vent us doing what we want to do, and if you 
will come up to the office within the next couple 
of days, we know that we can arrange these 
matters satisfactorily. 

Can you come today? 

Yours sincerely, 


— 99 — 



The second letter will be stronger than the 
first, and should follow in about a week, and in 
some cases four or five days would be even better. 


A. M. PHYSICIAN, M.D. 

Health Center, 

Missouri 

May 15, 19__ 


Mr. Wm. Smith, 

City. 

Dear Mr. Smith: 

We cannot conceive what can possibly have 
happened to stop you from coming up to see us 
regarding the $15.00 payment which was due 
us on May 5th, or at least to have acknowledged 
in some way our letter of May 8th. 

Justice, both to yourself and to us, demands 
that these obligations be taken care of, and there¬ 
fore we are going to ask you again to be kind 
enough to come up to the office and talk the 
matter over so that we can both know where we 
stand. 

Will you at least get in touch with us today? 

Yours sincerely, 


— 100 — 



If no reply has been received to the second 
letter, the inference is that there is a disinclina¬ 
tion to pay or at least that the patient is very care¬ 
less. The third letter can therefore be a step 
stronger than the second and should follow the 
second in four days to a week. 


A. M. PHYSICIAN, M.D. 

Health Center, 

Missouri 


May 22, 19_ 


Mr. Wm. Smith, 

City. 

Dear Mr. Smith: 

We are reluctant to believe that you really 
want to sidestep your obligations, but if you were 
in our position what would you think? 

The $15.00 payment you promised us on 
May 5th is more than two weeks overdue, and 
no reply has been received to either of our letters 
of May 8 or 15. 

So if the situation was reversed and you 
were in our place what would you do? 

Wouldn’t you begin to lose patience? 

However we are trying not to, and are still 
hoping that you want to live up to your agree¬ 
ment. 

Won’t you come in and see us and justify 
our confidence in you? 

Yours sincerely, 


— 101 — 


If no reply has been received to the other 
letters, there is no alternative but to make the 
fourth one strong. 


A. M. PHYSICIAN, M.D. 

Health Center, 

Missouri 


May 30, 19__ 


Mr. Wm. Smith, 

City. 

Dear Mr. Smith: 

Ignored—that is really the only word we 
can use to describe our understanding of your 
attitude to our three letters regarding the 
$15.00 payment you promised to make us on 
May 5th. 

You know it costs us money to write letters, 
at least 25c a letter everything considered; 
and we don’t feel that we are accomplishing any¬ 
thing with them in your case. 

Therefore if we do not hear from you on 
or before June 3rd, you will leave us no alter¬ 
native but to turn the account over to somebody 
who will use considerably sterner measures. 

We do have charity cases, however, and if 
you think you are entitled to charity, come in 
and explain your situation and, if we agree, we 
will give you a receipt in full. 

But we must have some action by June 3rd 
at the latest. 


Yours sincerely, 


— 102 — 


SECTION III 


INCOME TAXES 


If 86. General 

The sum and substance of all Income Taxes, 
whether Federal or State, is that the Government 
assessing the tax is a partner in each enterprise 
and as such is entitled to its share of the profits, 
and therefore it is necessary to know exactly what 
those profits are. 

The Federal Government requires the return 
for all Professions to be made on Form 1040, which 
is the large individual return, regardless of the 
amount of the Income or the loss. And as prac¬ 
tically all the States which have Income Taxes 
have based their law and regulations on those of 
the Federal Government, it is easier to make out 
the Federal Return first, and then to pick up the 
figures for the State return from it, as usually 
there are only a few minor differences in the allow¬ 
able deductions. 

Always keep a copy of all tax returns and 
have a proof of all the figures which appear on 
them. This is for the reason that the Government 
has the right, not only to examine the returns but 
also to demand a proof of their correctness. Sec¬ 
tion 41 of the Revenue Act of 1928 reads in part 
as follows: 

“The net income shall be computed \ 
upon the basis of the taxpayer’s annual 
accounting period (fiscal year or calendar 1 
year, as the case may be) in accordance 


— 103 — 


with the method of accounting regularly 
employed in keeping the books of such 
taxpayer; but if no such method of ac¬ 
counting has been so employed, or if the 
method employed does not clearly reflect 
the income, the computation shall be made 
in accordance with such method as in the 
opinion of the Commissioner does clearly 
reflect the income.” 

While the black face are ours, this gives the 
Commissioner great latitude in cases where no 
books, or very incomplete books, are kept. 

1f87. Obtaining the Figures 

For the purposes of illustrating the prepara¬ 
tion of the return the presumption is made that 
the Cash Journal form illustrated on the insert be¬ 
tween pages 22 and 23 is being used and that the 
figures for the year are as follows: 


Col. 9. Drawings_$ 9,640.52 

“ 10. Personal Credits_ 2,420.93 

“ 11. Fees _ 31,750.75 

“ 12. Use and Occupancy_ 2,441.70 

“ 13. Salaries _ 4,500.00 

“ 14. Books and Stationery_ 1,115.00 

“ 15. Auto Expense_ 1,160.55 

“ 16. Medical Supplies_ 1,450.00 

“ 17. Sundry_ 1,198.59 


The first thing to do is to take a separate 
sheet, preferably a columnar sheet, and make what 
is called an analysis of all the above columns ex¬ 
cept “Fees,” “Auto Expense,” and “Medical Sup¬ 
plies.” This “analysis” means to bring together 
amounts expended for like purposes during the 


— 104 — 











year. It would make too long a book to have a 
column for each expense such as Rent, Telephone 
and Telegraph, etc., which are only required to be 
separated for Income Tax purposes, therefore if 
no general ledger is kept showing these accounts 
separately it is necessary to make this distinct 
classification at the end of the year. And as it 
only takes a few hours at each year end, it is 
easier, and less work, to make this analysis once a 
year than it is to keep a General Ledger. The 
way it is done is to head up Columns for the vari¬ 
ous classifications desired and to go back over the 
columns of the Cash Journal and put each amount 
in its respective column on the sheet, for example, 
if the Use and Occupancy column in the Cash Jour¬ 
nal was made up of Rent $1,800, Telephone and 
Telegraph $521.70 and Janitor Service $120.00, a 
column would be headed for each of these classifi¬ 
cations on the work sheet and the different monthly 
charges entered in their respective columns and 
totaled. The sum of these totals should then agree 
with the total of the column in the Cash Journal. 
These figures could then be entered on the Cash 
Journal under the column they represent, like this: 

Use and Occupancy 


Total_$2,441.70 

Rent __$1,800.00 

Telephone and Telegraphs.- 521.70 

Janitor ---—•- 120.00 

Total_$2,441.70 


— 105 — 










There is then a permanent record of this an¬ 
alysis always available. 

The analysis then of the year’s totals are: 

Drawings 

New Car_$1,500.00 

Personal_8,140.52 

Total per Cash Journal_$9,640.52 


Personal Credits 

Interest Bank Deposits_$ 400.00 

Dividends “A” Company- 1,000.00 

Interest City Bonds- 250.00 

Expenses paid personally_ 770.93 

Total per Cash Journal_$2,420.93 


Use and Occupancy 

Rent _$1,800.00 

Telephone and Telegraph_ 521.70 

Janitor Service_ 120.00 

Total per Cash Journal_ $2,441.70 


Salaries 

Nurse Assistant_$1,800.00 

Office Assistant_ 1,500.00 

Chauffeur _ 1,200.00 

Total per Cash Journal_$4,500.00 

Less V 2 Chauffeur’s Salary_ 600.00 

Salaries Deductible_$3,900.00 


— 106 — 

































Books and Stationery 


Instruments _$ 95.00 

Postage_ 260.00 

Magazines_ 65.00 

Office Supplies “Miscellaneous”_ 695.00 

Total per Cash Journal_$1,115.00 


Sundry Expenses 
Taxes 

State Income_$ 23.44 

Federal Income_341.90 

Personal Property_281.50 

Auto Licenses_ 48.00 $ 


Association Dues_ 

Employers Liability Ins- 

Donations 

Y. M. C. A_$ 50.00 

Church_100.00 

Local Charities_100.00 


Insurance on Professional Car 

Total per Cash Journal-$1,198.59 


694.84 

175.00 

10.00 

250.00 

68.75 


All the figures necessary to prepare the re¬ 
turn, with the exception of Depreciation, have now 
been obtained. Depreciation is discussed under the 
succeeding paragraph. As “the expenses paid per¬ 
sonally^ of $770.93 listed under “Personal Credits” 
are already in the expenses this figure will not 
appear, as such, on the Income Tax Return. 


— 107 — 

























1f88. Depreciation 

There are various ways of computing deprecia¬ 
tion—which briefly is the shrinkage in value due to 
wear and tear—but only one method is being con¬ 
sidered here, and that is what is known as the 
straight line method. This is the simplest and most 
commonly used method as it uses a fixed percen¬ 
tage of the cost price each year. Theoretically, 
this cost price should be reduced by the estimated 
salvage value and the percentage taken on the 
balance, but in actual practice this is not very 
often done, the entire cost price being depreciated 
and adjustment made of any difference when the 
article is disposed of. In order to keep a record 
of the cost price of depreciable assets and the de¬ 
preciation which has been written off against them, 
it is suggested that a small book be procured and 
that each article be listed therein, together with the 
amount of the depreciation which has been charged 
off each year, like this: 

Date DEPRECIATION 

ARTICLE Purchased Cost Rate 1928 1929 1930 1931 

Hudson Coupe 5-25-27 $1,300.00 25% $325.00 

Typewriter 4-31-27 105.00 10% 10.50 

“ Desk 4-31-27 85.00 10% 8.50 

In this way there is not only a record of the 
depreciation which has been taken off each year 
but also a complete inventory of what are known 
as the Physical or Depreciable Assets. Such an in¬ 
ventory might prove itself of great assistance in 
many ways, such as the adjustment of a fire loss, 
the closing out of an estate, etc. And after it has 


— 108 — 



once been started it only takes a minute to enter 
up the purchases as they are made, and even 
that time is saved at year ends when the figuring 
of depreciation becomes necessary. Because by 
having all the depreciable assets in one place the 
computing of the amounts of depreciation not only 
becomes a very simple matter, but the danger of 
overlooking some items and thereby losing the 
benefit of the depreciation on them, is eliminated. 
The rate of depreciation is based on the estimated 
life of the article. If it is estimated that the use¬ 
ful life of the article would be ten years, then the 
rate of depreciation would be 10%, if five years, 
then 20%, or if twenty years, 5%. The author is 
of the opinion that it is not possible to make a 
hard and fast rule for the depreciation rate for 
any equipment, because, at the best depreciation 
is an estimate based on an expectancy, and also 
because identically the same equipment might have 
a very different life in two different hands. How¬ 
ever, here we are dealing with Revenue Laws and 
therefore for tax purposes the following rates are 
suggested: 



Books - 

Office Furniture 
Instruments 


(Medical, Surgical and Dental) 
Automobiles--- 


The variance in the medical and surgical in¬ 
struments will be individual in each case and should 
be governed according to whether the expected life 
will be nearer to ten years or twenty. 


— 109 — 






1J89. Making the Return ‘‘Schedule A” 

Always fill out the duplicate or working copy 
first, and it is better to use a pencil and then ink 
in the figures afterwards. Turn to the second page 
of the return “Schedule A—Income from Business 
or Profession” and on the line provided write “Phy¬ 
sician,” “Surgeon,” “Dentist” as the case may be. 

Line 1 

“Total receipts from business or Pro¬ 
fession” which amount would be the total 
of the “Fees” Column for the year. In 
this hypothetical case the total is_$31,750.75 

Lines 2 to 9, Inclusive 

The professions would not need to 
make any entry on these lines. They are 
only for providing space for computing the 
cost of goods sold where sales are the in¬ 
come producing factor. Ordinary med¬ 
ical, surgical or dental supplies used mere¬ 
ly as an incident to the profession do not 
come under this head. 

Line 10. Salaries_$ 3,900.00 

The analysis of the Salaries column 
in the Cash Journal showed that there was 
$1,200.00 salary paid to a chauffeur whose 
time was employed approximately one- 
half for personal and one-half for profes¬ 
sional requirements. His salary is there¬ 
fore divided in that ratio, and half of it 


— 110 — 



claimed as a deductible expense. The 
salaries of the nurse and office assistants 
are fully deductible. 

Line 11 

Interest on business indebtedness. As 
capital is not an income producing factor 
there will not be much interest which is 
interest on “business indebtedness.” About 
the only exception would be if equipment 
had been purchased on installments and 
interest was being charged for this privi¬ 
lege. Such interest would be entered 
here. But interest on house mortgages or 
borrowed money would be entered as 
Item 11 on the face of the return. 

Line 13. Losses by fire, storm, etc. 

This is one of the reasons that it pays 
to keep a record of the cost of all assets, 
because without such a record it is hard to 
prove any loss. If there is such a record 
and a fire, storm, or theft occurs and 
there is no insurance, then the cost of the 
article or articles less any depreciation 
which has been written off in former 
years, is deductible here, if it applies to 
the profession. If it does not apply to 
the profession but to the personal, then it 
is deductible as Item 13 on the face of the 
return. 

For example, the professional auto¬ 
mobile costing $1,750 has had deprecia- 


— 111 — 


tion in the sum of $437.50 charged against 
it when it burns up, and the insurance 
company pays $1,000.00 for the loss un¬ 
der their policy, the amount deductible 
here is $312.50. Repairs to the profes¬ 
sional automobile on account of accident 
would of course be deductible. These 
facts would be detailed in place provided 
on form. Losses sustained from damage 
to a pleasure automobile are deductible, 
but these would be shown as Item 13 on 
the face of the return instead of here. 

Line 14. Bad Debts arising from Sales or 
Services 

If the accounts are kept on the Re¬ 
ceipts and Disbursements Method, there 
will be no Bad Debts for the reason that 
the Fees are not brought into Income until 
the actual cash is received. But if the 
books are kept on the accrual method 
and the Fees brought into Income as and 
when earned, then any of the patients 
accounts which are not collectible may be 
charged off here. In cases like this it is 
advisable to make a journal entry on the 
books showing in detail the names and 
amounts of those charged off. 

Line 15. Depreciation, Obsolescence and 
Depletion 

There will be no depletion as here the 
words means the exhaustion of mines, oil 
wells, etc. The rates of depreciation ex- 


— 112 — 


plained under H88 are supposed also to 
take care of the obsolescence. However, 
if any professional equipment becomes 
obsolete before being entirely depreciated, 
the amount which has not been written off 
may be deducted here with a note of ex¬ 
planation as to why it was deducted, at¬ 
tached to the return. 

In order to obtain depreciation fig¬ 
ures for this illustrative return the follow¬ 
ing valuations are assumed: 


Office Furniture_$1,050.00 

Professional Equipment_ 1,750.00 

Books _ 1,000.00 

Automobile___ 1,875.00 


The price of $1,875.00 on the auto¬ 
mobile was arrived at in the following 
manner: The list price of the car was 
$2,000.00, there was $1,500.00 paid in 
cash and charged in the personal drawing 
account in May and $500.00 was allowed 
on the old car. This old car, however, 
had been reduced by depreciation until 
it was only worth $375.00 as far as the 
books were concerned. Therefore the 


$1,875.00 is made up of: 

Cash Payment, May 25, 1928-$1,500.00 

Value of Old Car_ 375.00 

Actual Cost of New Car_$1,875.00 


There is no need of reporting the ap¬ 
parent profit of $125.00 in cases like this 


- 113 - 











as the automobile was held for “produc¬ 
tive uses” and therefore comes within the 
purview of I. T. 2356 which recognizes no 
gain or loss in the exchange of such prop¬ 
erty for property of a like kind or use. 

Chargeable Depreciation therefore is: 

Office Furniture_10% $105.00 

Professional Equip._10% 175.00 

Books _20% 200.00 

Automobile 

25% of $1,875.00 $468.75 

Purchased 5-25-28 or V 2 year_ 234.37 

Total _$714.37 

This sum total, or $714.37, would be 
entered on line 15 and the detail just as 
shown above would be entered in the 
“Explanation of Deduction for Deprecia¬ 
tion” provided on the form. 

Line 16. Rent, Repairs and Other Ex¬ 
penses _$3,810.45 

The figures necessary for this line 
have been obtained from the analysis of 
the Expense Column of the Cash Journal 
as shown under Tf87. Very often there is 
not enough space to enter all the items on 
the two lines given on the form for the 
“Explanation of Deductions claimed on 
Lines 5 and 16.” If there is not enough 
space make it on an extra sheet and at¬ 
tach it. Even if there are only a few items 
it is better to put the figures on an ex- 


— 114 — 









tra sheet first as it is always hard to 
cross-add figures. The amounts which 
will be entered here are those which apply 
solely to the profession, in this case. 


Rent-:-$1,800.00 

Telephone and Telegraph_ 521.70 

Janitor Service_ 120.00 

Instruments (Short Life)__ 95.00 

Postage_ 260.00 

Magazines ____ 65.00 

Office Supplies and Miscl_ 695.00 

Association Dues_ 175.00 

Employees Liability_ 10.00 

Professional Car Insurance_ 68.75 


$3,810.45 


Line 17 

The figures appearing on Lines 10 
to 16, inclusive, will be added together 
and entered on line 17. The same total 
will also be carried to 

Line 18 

which in this case is_$8,424.82 

and this amount will be deducted from 
the fees of $31,750.75, which will give the 
figure to put on 

Line 19 

which is the difference between the pro¬ 
fessional income and purely professional 
expenses and in this case is-_$23,325.93 


— 115 — 

















This figure is then entered on Line 
19 and is also carried to Item 2 on the 
face of the return. 

TJ90. Making the Return, Items 1 to 18, Inclusive 

Item 1. Salaries 

This would ordinarily not apply to 
members of the professions, because such 
amounts as retainers paid by corporations 
for medical service to their employees, and 
insurance companies for examination of 
applicants, would come under the heading 
of “fees” and would be treated as such. 

Item 2. Income from business or profession 

Here will be entered the amount 
which appears on Line 19 of Schedule 
“A” which is the net income from the 
professional services__$23,325.93 

Item 3. Interest from Bank Deposits, 
Notes, etc. 

All interest received from Bank De¬ 
posits, Notes, (whether from Patients or 
not) Mortgages, Corporation Bonds, (ex¬ 
cept those on which the Company agrees 
to pay the income tax up to 2%) will be 
entered here. If there is any interest 
which has been received but which has 
not been entered on the professional 
books, then a detail of the amounts should 
be preserved. Dividends on Preferred 


— 116 — 



Stock are Dividends and not interest, 
even though they are paid in monthly or 
quarterly installments. Interest received 
from any City or State or other political 
subdivision, or from certain other securi¬ 
ties listed on Schedule E of the return are 
exempt from any tax. Therefore the 
$250.00 interest need only be shown on 
Schedule E subdivision (a). 

(a). Interest on Tax-Free Covenant Bonds 

To include the interest received on 
Corporation Bonds which carry a clause 
to the effect that Federal Income taxes 
up to 2% will be paid by the company. 
If the net income after exemptions ex¬ 
ceeds $4,000.00 form 1,000 should be 
filed which gives the bond holder the 
benefit of the full 2%. If the Bond 
holder files form 1000A the credit is 
limited to 1%%, and if he files form 
1001 he cannot claim any credit at all. 

Item 4. Income from Partnerships and 
Fiduciaries 

The amounts entered here must cor¬ 
respond with the taxpayers share as shown 
on the Partnership or Fiduciary return. 
It is therefore advisable to obtain such 
figures from those in charge of the part¬ 
nership, or the Trustees as the case may 
be. 

Item 5. Rents and Royalties 

(See instructions under Item 6). 


— 117 — 


Item 6. Profit from Real Estate, Stocks, 
Bonds, etc. 

If there is income of any consequence 
from any of these sources it is suggested 
that advice be obtained from someone who 
understands the technicalities of the In¬ 
come tax laws. If, however, the income is 
confined to, say, rent from an upper part 
of a duplex while living in the lower, the 
total amount of the rent would be re¬ 
ported in Schedule B and all expenses 
applicable to the upper part deducted 
therefrom. If one heating plant only is 
used then one-half of the fuel cost would 
be allocated to the rental portion. One- 
half of the depreciation rate on the house, 
which rate would be from l*/2% to 3%, 
could be claimed as a deduction. 

Item 7. Dividends on Stock of Domestic 
Corporations 

Dividends received on stocks of Cor¬ 
porations of the United States are only 
subject to surtax and therefore will be 
deducted from the net income subject to 
the normal tax by entering as item 32 
under the Computation of Tax. All earn¬ 
ings from Stocks, except of course profits 
from the sale, are dividends even if the 
stocks are Preferred and carry a guaran¬ 
teed specific percentage per annum, which 
percentage might be paid in different in- 


— 118 — 


stallments. They are still dividends and 
not subject to Normal Tax. 

Item 8. Taxable Interest on Liberty Bonds 

The table for the computation of the 
taxable interest on Liberty Bonds is given 
in Schedule E. Briefly this is that the in¬ 
terest on all over $5,000.00 worth of Lib¬ 
erty Bonds is subject to surtax. None are 
subject to normal tax, and the First Liberty 
bond known as Liberty 3*4% is entirely 
exempt. 

Item 9. Other Income 

These spaces are provided for re¬ 
porting income which is not specifically 
provided for on any of the above lines, 
such as recoveries of any amounts charged 
to losses in previous years, or any other 
item of taxable income. 

Item 11. Interest Paid 

Practically all interest paid is deduct¬ 
ible, whether it is interest paid on a house 
used as a residence, or whether on bor¬ 
rowed money. The only exception is in¬ 
terest on money borrowed to purchase or 
carry securities, the interest from which 
are not taxable. For example, if money 
is borrowed to purchase or carry munici¬ 
pal bonds, the interest on that borrowed 
money would not be deductible. 


— 119 — 


Item 12. Taxes Paid 


All taxes paid are an allowable de¬ 
duction from gross income except the Fed¬ 
eral Income taxes themselves. The State 
Income taxes are an allowable deduction 
from the Federal return and usually both 
the Federal and the State Income Taxes 
are deductible on the State Return. Auto¬ 
mobile Licenses are a tax, taxes on admis¬ 
sions and dues, such as on Golf Club Dues, 
should be included among the taxes. 


Item 13. Losses by fire, storm, etc. 

Allowable deductions under this 
classification are very often overlooked by 
individual taxpayers. For example, the re¬ 
pairs made necessary by a water pipe 
bursting in one’s own residence would be 
deductible under this section. Also as a 
result of the case of Shearer vs. Anderson 
it was announced in I. T. 2363 that losses 
from damage to one’s own pleasure auto- 
^ mobile are deductible. Inconsistently, 
however, damages paid to another on ac¬ 
count of an automobile accident are not 
deductible. Losses resulting from thefts 
of any kind would be deducted here, if 
they were thefts of personal belongings, 
if of professional property then on line 13 
of Schedule “A.” 


— 120 — 



Item 14. Bad Debts 


The Bad Debts to be charged off here 
are the bad debts arising from personal 
transactions, as for example, money loaned 
to a friend, whether on a note or not, 
would be deducted here if collection 
could not be made. If the money was 
given to him with no expectation of it be¬ 
ing repaid it could not be deducted as 
then it would be in the nature of a gift, 
and would not be deductible either as a 
bad debt or as a donation. 

Item 15. Contributions 

In order for deductions for contri¬ 
butions to be allowable they, like every¬ 
thing else on the return must be suscept¬ 
ible of proof, not only as to the amount 
paid, but also that the recipient comes 
within one of the classifications, which are 
enumerated in Regulations 69, Article 251 
and also briefly under the instruction 15, 
form 1040. 

These in short are: 

That it must be an organization which 
depends principally on voluntary offerings 
for its support and no part of any profits 
of which inure to the benefit of any in¬ 
dividual or individuals. 

Must be provable both as to amount 
paid and recipient. 


■ 121 — 


Contributions to a Foreign Corpora¬ 
tion are deductible by residents of the 
United States in the same way as if made 
to a domestic corporation. 

15% Limitation means 15% of the net 
income before considering any deduction 
for donations, but in arriving at this net 
income any “capital losses ,, must be in¬ 
cluded as part of the allowable deduc¬ 
tions. 

Pledges to charitable organizations 
are not deductible until actually paid 
where returns are made on Receipts and 
Disbursements method. 

Partnership Contributions are deduct¬ 
ible by the partners on their individual 
returns in the same proportion as their 
shares of the partnership. 

Item 16. Other Deductions Authorized by 
Law 

Under this heading would come such 
losses as those arising from speculation, 
but if stock is bought outright there must 
be a bona fide sale, or else the company 
must be completely bankrupt and have 
ceased business, before a loss can be 
claimed. If the stock is sold and re-pur¬ 
chased in whole or in part within 30 days 
no loss can be claimed. This 30 day limi¬ 
tation, however, does not apply to losses 
sustained in the sale of securities which 


— 122 — 


have been purchased on the margin. 
Many losses of this nature have been dis¬ 
allowed because of insufficiency of proof, 
it is therefore very necessary to keep ab¬ 
solute proof of all losses from such sources. 

If a net loss is sustained in any one year 
it can be deducted in whole or in part for 
the two succeeding years and the amount 
would be deducted under this caption. 

Item 17 

Is the sum total of items 11 to 16, 
inclusive, which being deducted from the 
Total Income, Item 10, gives the Net In¬ 
come which is entered as Item 18. 

Tf91. Computation of Tax 

Under the Revenue Act of 1928, the amount 
subject to the earned income credit shall in no 
cases be less than $5,000 nor more than $30,000. 
This means that if the entire Net Income is $5,000 
or less, then it is all considered to be Earned Income 
no matter from what sources it may be derived, 
and if the entire net income is more than $5,000 
then the earned net income shall not be considered 
to be less than $5,000. If the Net Income is more 
than $5,000 then ordinarily the Earned Net Income 
will be that amount which appears as Item 2 on the 
face of the return and carried from Line 19 of 
Schedule “A.” From this amount will be deducted 
the personal exemption and credit for dependents. 
The remainder, which is entered as Item 21, will 
then be divided into two $4,000 items, one each of 


— 123 — 


which will be entered as items 22 and 23. The 
balance between this $8,000.00 and the amount 
appearing as Item 21 will be entered as Item 24. 
The amount of the tax is then computed on these 
items and entered in the spaces provided. These 
amounts shown as Items 25 to 28 are then added 
together and entered as Item 29. The credit of 
25% of the tax on account of earned Income is, 
however, limited to 25% of the normal tax on the 
entire net income subject to normal taxes plus 25% 
of the surtax on the earned net income, and there¬ 
fore the amount to be entered as Item 30 does not 
necessarily mean 25% of Item 29. The quick way 
to find out which governs is by comparing Items 27 
and 44. If Item 44 is the same or greater than 
Item 27 then the credit will be 25% of Item 29. 
If Item 44 is less than Item 27 then the credit will 
be 25% of the sum of Items 28, 42, 43 and 44. 

The figure shown as Item 18, Net Income, will 
be entered as Item 31 from which will be deducted 
the dividends, interest on Liberty Bonds, Personal 
Exemption and credit for dependents. The re¬ 
mainder will be split into two $4,000.00 items and 
the difference between the $8,000.00 and Item 37 
will be entered as Item 41. Possibly the easiest 
way to obtain 1%% is to point off two figures and 
add half of the result. For instance li/2% of 
$2,965.25. 


$29.6525 

14.8262 


$44.4787 


— 124 — 





then 1%% for taxable purposes would be $44.48. 
To obtain the 3% point off two figures and mul¬ 
tiply by 3. To obtain the 5% point off one figure 
and divide by 2. The surtax is computed in ac¬ 
cordance with a table of rates which is given on 
the instruction part of the return. If there is any 
Capital Net Gain or loss, it is suggested that per¬ 
sonal advice be obtained. Briefly Capital Net 
Gain or Loss means the profits or losses applying 
to sales consummated after December 31, 1921, on 
assets held for more than two years. It is optional 
with the taxpayer whether he takes advantage 
of this section or not and as the tax on Capital Gain 
is 12%% it would not pay him to do it unless his 
income is approximately $25,000.00. The Income 
Tax paid at source is the 2% on tax free covenant 
bonds listed as Item 3 (a). 

If92. Specimen Federal Return 

In order to further illustrate the preparation 
of the Federal Return a specimen return is filled 
out from the figures used in the preceding para¬ 
graphs in this section. This Return is prepared in 
accordance with The Revenue Act of 1928, and is 
shown on pages 126 and 127. 


— 125 — 


Form 1040 

U S. Internal Rbventte 


(Auditor's Stomp) 


INDIVIDUAL INCOME TAX RETURN 


FOR NET INCOMES FROM SALARIES OR WAGES OF MORE THAN $5,000 

OR INCOMES. REGARDLESS OF AMOUNT. FROM BUSINESS. PROFESSION. RENTS. OR SALE OF PROPERTY 

19 2 8 

For Calendar Year 


Do Not Writ* in The* 


Fife 

Cede 


FSt This Rshvn With the Collector of Interns! Revenue for Year District on or Befo*e Msrrh IS. 1928 


Sens! 


(Coekier'e Stomp) 


(PRINT NAME AND ADDRESS PLAINLY BELOW) 


A. If* PHYSICIAN 

(Nibm) * ” 

1941 Medical Arts Bldg. 

(dtreet end number, or ruraj'rouW) 


Health City 

(Poet oirioe) 


Jackson 

(County)* 


Missouri 

.(State)’ 


Occupation, Profession, or Business.pOCtor 


Ce.fc CWk M. O. Cert. «f Im 


Fleet Pe; 


t- 

CtrtUd 


As_ 


yes 


I. Are you n arisen or resident 

of the Uni tod States? ... 

"2. If you filed a return for 1W6, -.-.V’* 1'. ' 

to what Collector's office was It wnt? ?*.„.!! •. ■ P * 

3. Is this a joint return 

of husband and wife? .. 

4. State name of husband or wife if Laura K« Physician 


no 


5. Were you married and living with husband 

or wife on the last day of your taxable year?___ 

6. If not, were you on the last day of your taxable year supporting one or 

more persons living in your household who are closely related to you? 

7. If your status in respect to questions 5 and 6 changed 
during the year, state date and nature of change.. 


no 


. , .. * - iw < *.» 8 How dependent persons (other than husband or wife) under 18 years of 

CoM^ctorisoffice JhVre^was sent Sixth Diflt. Mo. ft * eor ,ru '*P lbl ® self-support because mentally orphysically defective were 2 

*° r ® omc ® whcre « was sent. . . . receiving their chief support from you on the last day of your taxable year?_ 


In 


mS 

N» 


INCOME 

1. Salaries, Wages, Commissions, etc. (8i*u asms sad sddrow at pwsoo from whom rrceivsd) 


Amount ricrwtd 


El pe*** pmtd 

la Sat i Jail D 




J. Income from Business or Profession. (Prom SrbsdoJs A). 

3. Interest on Bank Deposits, Notes, Corporation Bonds, etc. (except interest upon which a tax was paid at source). 

(«) Interest on Tax-free Covenant Bonds Upon Which a Tax was Paid at Source... 

4. Income from Partnerships. <6t&t« nsm* sad addrw»). 


(a) Inoomo from Fiduciaries. <st*t« a*a>e sad sddms). 


Z. Rents and Royalties. (Prom ScbedoU B). 

4. Profit from Sale of Real Estate, Stocks, Bonds, etc. (Prom Schsdais C). 

7. Dividends on Stock of Domestic Corporations .. 

5. Taxable Interest on Liberty Bonds, etc. (Prom Schedule E). 

9. Other Income (including dividends received on stock of foreign corporations), (duu astors at inooos) 

(«) .... . .. 

(*)--I... 

10. Total Income in Items 1 to 9.... 

DEDUCTIONS 


23 


326 

400 


93 

00 


OOO 


00 


11. Interest Paid ......___ _ 

12. Taxes Paid. (Explain la Scbsdols P). 

13. Losses by Fire, Storm, etc. (Explain in Table oa peg* 3 ). 

34. Bad Debts. (ExplaJi la Schedule P)... 

15. Contributions. (KxpUio la Schedule P)... 

Id. Other Deductions Authorized by Law. (Explain in Schedule P)... 

17. Total Deductions in Items 11 to 16_.. 

I 8 :_Net Incomb (Item 10 minus Item 17)...... 


S.... 


.•- 


362 ) 94 
70 | 


416 

260 


00 


19. Earned Net Incoma (not over luCXflW 

20. Less Personal Exemption and Credit 

for Dependents (sec Instruction 20). 


21. Balance (Item 19 minus 20)_ 

22. Amount taxable at 1>$% (not over the 

first $4,000 of Item 21).. 

23. Amount taxable at 3% (not over the 

second $4,000 of Item 21).. 

24. Amount taxable at 5% (balance over 


25. Normal Tax (1M% of Item 22)_ 

28. Normal Tax (3% of Item 23)___ 

27. Normal Tax (5% of Item 24)._. 


28. Surtax on Item 19 (see Instruction 21). 

29. Tax on Earnod Net Income (total of 

Items 25. 26, 27, and 28)._ 

30. Credit of 25% of Item (not over 

23% of Items 28, 42, 43, and 44).... 


*23326 

93 

4300 

00 j 

$ 19026 

93 

* 4000 

00 

...4Q00 

00 

11026 

93 

$ so 

00 

.1.20. 

651 

Q0 

30 

399 

56 

$..1130le6 

, 2741 

98 


COMPUTATION OF TAX (See instruction si) 


S ; 


24 


726 


018 


23 707 I 2 


31. Net Income (Item 18 above).. 

32. Less Divi. lends (Item 

7 above).. 

33. Interest on Liberty 

Bonds,etc. (Item 8). 


34. Personal Exemption.. 

35. Credit for Dependents 


3500 

00 

GOO 

00 




23707 


36. Total of Items 32. 33, 34, and 35.. 


37. Balance (Item 31 minus 36)... 

38. Amount taxable at \ Vi% (not over 

the first $1,000 of Item 37)_ 


s 18407 


39. Balance (Item 37 minus 38). 


40. Amount taxable at 3% (not over 
the second $4,000 of Item 37). 


41. Amount taxable at 5% (balance 
over ?S,000 of Item 37). 


5300 


29 


00 


4000 


29 

00 


s 144071 29 
400Q 00 


1040 


r 29 


42. Normal Tax (1H% of Item 38). 

43. Normal Tax (3% of Item 40)_ 


44. Normal Tax (5% of Item 41)_ 

45. Surtax on Item 18 (see Instruc¬ 

tion 21).... 

48. Tax on Net Income (total of Items 

42, 43, 44, and 45)__ 

47. Less Credit of 25% of Tax on 
Earned Net Income (Item 30).., 


48. Balance (Item 46 minus 47).. 

49. Adjustment for Capital Gain or Loss 

Column 9, Schedule D). 

50. Total Tax (total of oc difference be¬ 

tween Items 48 and 49)__ 


AFFIDAVIT 


51. Less Income Tax Paid at Source. 

52. Income and Profits Taxes paid to a 

_ _ foreign country or U. S. possession 

53. Balance of Tax (Item 50 minus 
Items 51 and 52) 



I swear (or affirm) that this return, including the accompanying s'IkMmI.-h and atatemenbi (if *nvi k.. , . 

is a true and complete return made in good faith for the taxable year as slated, pursuant to the RcvSL Act^f l^and R^Urio^ 


[ 


(If Mtifu M UiitaJe by eg»oi. (Im reason therefor must bo steted on th,e Lac)*.~" 

JSworn to and subscribed before mo this... day of..... 192 3 


(Signature o t tadindual or Agent) 


(Mitaxiuro of oJLo r iwlimnisicni'g on<b) 

An amended return must be marked “Amended ’’ at top of return 


crtiM 


(Address of igcat) 

Checks and drafts will l>e accepted only if payable at par 



































































































































































































SCHEDULE A— INCOME FROM BUSINESS OR PROFES SION ( See In struction 2) 


Total receipts from business or profession (stato kind of business) 
Cost or Goods Sold 

Labor_ 


$. _ 


Material and supplies- 

Merchandise bought for sale.. 

Other costs (itemise below or on separate sheet).. 

Plus inventory at beginning of year_ 

Total (Lines 2 to 6, inclusive)_ 

Leas inventory at end of year_ 


Net Cost or Goods Sold (Line 7 minus Line 8). 


ot».— Do not deduct here or elsewhere compensation for your services. 


Other Business Deductions 


10. Salaries, exclusive of “Labor,” reported on Line 2, 
and exclusive of compensation for your services_ 


11. Interest on business indebtedness to others. 


12. Taxes on business and business property.. 

13. Losses by fire, storm, etc. (explain in table provided 

therefor at foot of page)___ 


14. Bad debts arising from sales or services__ 

15. Depreciation, obsolescence, and depletion (explain 

in table provided therefor at foot of page). 

16. Rent, repairs, and other expenses (itemized below or 

on separate 6heet)_ 


17. 


Total (Lines 10 to 16, inclusive). 


s 31750 


3900 00 


JTL4 

3810 


8424 


37 

45 


82 


18. Total Deductions (Line 9 plus Line 17)_ 

19. Net Profit (Line 1 minus Line 18) (Enter as Item 2) 


75 


8424 82 


| s 23325193 


xpianation of deductions 
aimed on Lines 5 and 16_ 


SCHEDULE B—INCOME FROM RENTS A ND ROYALTIES (See Instruction 5) 


1. Koto or Paorsarr 

2. A MOUNT * 

Received 

3. Cost 

4. VBLUE AS or 
Makci 1, 1913 

6. Depreciation 
lEial.ia !• tafclo 
at (mi al ►*«•> 

0. Repairs 

7. On cr Expenses 
(I temize below) 

8. Net Propit 
(E nter as Item -t 


i. 


$ . 


s. 


s.. 


s 


s 


s.... 
















































planation of deductions / 

imed in Column 7...........'. 


SCHEDULE C—PROFIT FROM SALE OF REAL ESTATE. STOCKS. BONDS. ETC. (See Instruction 6) 


1. Kero or Propxitt 


2. Data AcgmiD 


3. Amount Ricimo 


4 Depreciation 
Allowable Since 
Acquisition 


3. Cost 


_S_ 


6. Value as or 
Mails 1, 1613 


7. Subsequent 
Impboveuemts 


$ __ 


S. Nat Propit 
(Enter os Hem 6) 


tate how property 
as acquired. 


SCHEDULE D—CAPITAL NET CAIN OR LOSS FROM SALE OF ASSETS HELD MORE THAN TWO YEARS (See Instruction 6a) 


L Kind o» Pro mitt 

2. Date 
Acquis to 

3. Date 

Sold 

4. AMOUNT RECEIVED 

6. Depreciation 
Allowable Bores 
Acquisition 

0. Cost 

7 Value as or 
March 1, 1913 

8 SUBSBUlE.NT 

I MPI!t>» E\l <NTS, HD 

Capital Deductions 

9. Ni.r ISaiv ok LOSS 
(Enter 12‘VT* as 

Item 40) 


Mo Dot i’tor 

Mo. Dap Y«ar 


. 

S. 


. 



. 


































tate how property 
•a* acquired . 


SCHEDULE E— INTEREST ON LIBERTY BONDS AND OTHER OBLIGATIONS OR SECURITIES (See Instruction 8) 


L Obligation* 01 8RCU»m*S 

X IjSTtREST Received 
oa ACCRUED 

3. Amount Owned 

4. Principal 

A MOL NT 
Exempt From 
Taxation 

0. Amount Owned 
in Excess or 
Exemption 

6 Interest on 
Amount in Ex* ess 
or Exemption 
(Enter as Icooi ft) 

a) Obligations of a State, Territory, or political subdivision thereof, or the District of 

S. 260 

00 

i 6000 

00 

Ail. 

X X X X X X 

X X 

X X X X X X 

X X 




V 


All. 

X X X X X X 

X X 

X X X X X X 

X X 

c) Liberty 3H% Bonds and other obligations of United States issued on or before 





All. 

X X X X X X 

X X 

X X X X X X 

X X 

<f) Liberty 4% and 4% Bonds. Treasury 3%%,3K%» 4%. ® n d Bonds, Treas- 





$5,000 . 




e) Treasury Votes. .. 





tVopA 



. 



SCHEDULE F—EXPLANATION OF DEDUCTIONS CLAIMED IN ITEMS 1, 12, 14, 15, AND 16 


Item 12-Taxes Paid 


.It m. 15-Contr ibu.tion#. 


State Income 

$ 23.44 

Y.U.C.A. 

# 50.00 

Personal Property 

281.50 

- Church 

100.00 

Auto Licenses 

48.00 

Local Charities Drive 

100.00 

Total 

{352.94 

Total 

#250.00 


EXPLANATION OF DEDUCTION FOR DEPRECIATION CLAIMED IN SCHEDULES A AND B 


1 R/NC or Pro?b«tt 

<.t > >uil<3:ocs. suie materia) A which constructed) 

2 Date Acquired 

3. Ant Wben 

ACQUIRED 

4 Probable I.ipb 

A PTE a AlQUECMENT 

5 Cr.r 

(EtcluslTouf Lan i) 

0 Vali k as nr 

M A »' II 1. Irflj 

(Exclusive of Liu-)) 

Amount or I» 

*»nrrurK»N Ciiaik.cd O r 

7 Previous je-trs 

8. Thu y *-.1 

Office Furniture 

1924" 

new 

10 yra 

<s 1050 

00 



* 262 

50 


105'00 

Professional Equipment 

various 


10 yrs 

.2Z0DL 

00 



290 

00 

.176.1.00.. 

Books 

w 


6 yrs 

1000 

00 



360 

00 

...200 00. 

Automobile 

1928 

n 

4 yrs 

1876 

00 



-- 



234|37 


EXPLANATION OF DEDUCTION FOR LOSSES BY FIRE, STORM, ETC-, CLAIMED IN SCHEDULE A, AND IN ITEM 13 


1 Kjnd or Proper rr 

2. Date Acquired 

3. Cost 

4 Value as or 

M ah s 1. 1913 

f> Rubbequent 
Impbot ements 

0 1 •RPRRtlATl'iN 
Allowable flint e 
Acquisition 

7 Insurance and 
Salvage Value 

8 Deductible 

L>i\i 

Diamond Ring Stolen 

1923 

% 260 

00 

$. 


$. 






s.250 

00 

Repairs to pleasure car 












165 

70 

resulting from collision 






.. ,,., 


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I- IV *<4 




















































































































































































































































































































TI93. State Income Tax Returns 

The basis of the various Income Tax Laws of 
the different States which have enacted such, is 
very similar to that of the Federal, the main dif¬ 
ferences being in the amounts of exemption and 
rates of tax. 

There are, however, some difference in the 
allowable deductions as for example both the Fed¬ 
eral Income Tax and the State Income Tax are 
deductible expense in most cases. 

Dividends from a Domestic Corporation on a 
State Return would mean a corporation organ¬ 
ized under the laws of that State. In the same 
way a Foreign Corporation would mean not only 
a corporation of some foreign country but also one 
of some other State. 

As these enactments are subject to continual 
change, it is impossible to include in a work of 
this kind detailed instructions for the preparation 
of the Income Tax Returns of all the various States. 
Nor is it necessary, because if the Federal Return is 
made first, the differences between the require¬ 
ments of the Federal Government and the State 
Government will be easily seen by a comparison of 
the two forms. 

If94. Answers to Questions Often Asked 

Office in Residence. 

If residence is rented the proportion¬ 
ate share of the space used for an office 

may be deducted. This would also apply 


— 128 — 


to the light and heat. If a house servant 
is employed partly for the professional 
requirements the cost of her board, lodg¬ 
ing and wages may be proportioned. If 
she is employed entirely in the interests 
of the profession then the entire amounts 
could be deducted. A reasonable value 
should be placed on the board and lodg¬ 
ing as these really constitute part of the 
wages. 

Post Graduate Courses. 

Amounts expended for Post-graduate 
courses are not deductible as an expense 
on the Federal Returns. 

Conventions. 

Amounts expended for Conventions 
are not deductible on the Federal Re¬ 
turns. 

Automobile Liability Insurance. 

May be deducted only if the automo¬ 
bile is used entirely for professional pur¬ 
poses. 

Insurance Premiums. 

On office Furniture and Professional 
equipment and Employer’s Liability may 
be deducted. 

Cost of Uniforms. 

The cost of uniforms of Nurses, Sur¬ 
geons, Dentists, etc., are held to be per¬ 
sonal expenditures and not deductible. 


— 129 — 



Losses from Betting or Gambling. 

The General Rule is that these are not 
deductible, but there are exceptions to this 
rule where the form of betting was legal 
under State law. If in doubt therefore the 
advice of someone who understands the 
Income Tax law should be requested. 

Loss on Sale of Residence Property. 

This is a deductible item only if it can 
be shown that it was purchased with the 
idea of the subsequent sale at a profit. 
But a profit must be reported regardless 
of whether it was purchased for subse¬ 
quent resale or purely as a residence. 

When Losses are Deductible. 

All losses are deductible in the year 
in which they occur. If they occur in one 
year and the insurance is not collected 
until the next, the amount of the insurance 
to be obtained should be estimated and the 
difference claimed as a loss. If this 
estimate is substantially incorrect, an 
amended return should be filed. 

Shrinkage in Value of Stocks and Bonds. 

No loss is allowable for mere shrink¬ 
age in value. In order to claim a loss a 
bona fide sale must be made or the securi¬ 
ties proved absolutely worthless. 

Capital Expenditures not Deductible. 

In brief the term Capital Expendi¬ 
tures can be taken to mean the purchase 


— 130 — 


of such articles as are more or less per¬ 
manent in their nature and add to the effi¬ 
ciency, or increase the earning capacity, 
of the purchaser. Depreciation on such 
articles would, however, be deductible. 

Gains and Losses from “Margin” Transactions. 

The Gains or Losses resulting from 
speculating on the “Margin” are to be re¬ 
ported in the year in which they occur. 
Losses from this source are fully deductible. 

Automobile Accidents. 

Damages to one’s own pleasure car 
are deductible if not covered by insurance, 
but amounts paid to another for damage 
to his car are not deductible. 

Exempt Income. 

The different kinds of Income exempt 
from the Federal Income taxes which are 
most likely to affect members of the Medi¬ 
cal Professions are as follows: 

Proceeds of Life Insurance Policies 
paid on death of the insured. 

Gifts and Bequests. 

Compensation of State Officers and 
Employees. 

Income from securities of political 
subdivisions of the United States. 


— 131 — 


PRICES OF FORMS ILLUSTRATED IN 
PHYSICIANS’ SYSTEMS 

PHYSICIANS CASH JOURNAL^ 

Sheets, shown on insert between pages 22 and 23, 


50, $2.50; 100, $4.75. 

Binders 

Canvas, full. No. 8817_$2.75 

Canvas, Leather Corners, No. 7817_3.25 

Nickel Case, No. 5417_5.85 

Russia and Corduroy, No. 4817_7.50 

PATIENTS’ LEDGER 
Visible Record 


Similar forms are made by different manufac¬ 
turers and there is quite a variance of 
prices, depending on quality and the num¬ 
ber of accounts required. The prices of 
those illustrated in PHYSICIANS’ SYS¬ 
TEMS are as follows: 

Sheets for either Doctor or Dentist shown on pages 
56 and 63, respectively, 100, $1.50; 1000, $13.50 

Capacity 567 Patients Accounts 

Binder No. 4320, $19.00; Index No. 4340, 27, 
$3.50. 

Capacity 840 Patients Accounts 

Binder No. 4330, $23.00; Index No. 4340, 50, 
$7.00. 

Physicians Ledger Sheets No. 137, shown on page 58, 
100, $1.85, 500, $8.35. 

Dentists Ledger Sheets No. 152, shown on page 63, 
100, $1.85; 500, $8.35. 

Card System 

Alphabetical Guides, 3x5, Plain, $0.75, Cellu¬ 
loid, $1.70. 

Ledger Card, 3x5, 100, $0.75; 1000, $5.70. 

Duplicate Statement Ledger, shown on page 60: 
Binder, $3.35 to $7.30. 

Sheets, 100, $2.25; 500, $10.25. 


— 132 — 






ACCRUAL METHOD 

Cash Journal forms shown on page 80: 

No. 677-20, 100, $1.95; 500, $8.75. 

General Ledger Sheets shown on page 72: 

No. 371, 25, $1.25; 100, $3.50. 

Service Record Form shown on page 85: 

No. 139, 100, $2.10; 500, $5.90. 

SUNDRY FORMS 

Pocket Memo Books 

Sheets, 100, $0.40; 500, $2.00. Binders, $1.60 to 
$2.50. 

Case Record Cards, 100, $0.80; 500, $3.65. 

Pocket Ledger Sheets, Doctors or Dentists, 100, 

$0.55; 500, $2.50. 

COLLECTIONS 

Day Guides, 3x5, Plain, $0.50; Celluloid $1.10. 

Monthly Guides, 3x5, Plain, $0.80; Celluloid, $1.80. 

Any of the above forms, with the exception of the Phy¬ 
sicians’ Cash Journal, can be purchased at all the better sta¬ 
tionery stores, but if they cannot be procured, they will be 
supplied by us post paid at the prices quoted. The Physicians’ 
Cash Journal forms can only be obtained from us. 


PHYSICIANS PUBLISHING COMPANY 
Kansas City, Missouri 


— 183 — 












































































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Deacidified using the Bookkeeper process. 


PreservationTechnologies 

A WORLD LEADER IN COLLECTIONS PRESERVATION 


111 Thomson Park Drive 
Cranberry Township, PA 16066 
(724) 779-2111 










